                              T.C. Memo. 2015-200



                         UNITED STATES TAX COURT



          DONALD A. WESLEY AND SANDRA F. WESLEY, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2487-14.                           Filed October 13, 2015.


      Donald A. Wesley and Sandra F. Wesley, pro sese.

      Jessica R. Nolen, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


      CHIECHI, Judge: Respondent determined a deficiency in, and an accuracy-

related penalty under section 6662(a)1 on, petitioners’ Federal income tax (tax) for

their taxable year 2011 of $15,649 and $2,670, respectively.


      1
       All section references are to the Internal Revenue Code (Code) in effect for
the year at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
                                        -2-

[*2] The issues remaining for decision for petitioners’ taxable year 2011 are:

      (1) Are petitioners entitled to a deduction under section 170(a) for claimed

charitable contributions in excess of the deduction that respondent allowed under

that section? We hold that they are not.

      (2) Are petitioners liable for the accuracy-related penalty under section

6662(a)? We hold that they are.

                               FINDINGS OF FACT

      Some of the facts have been stipulated and are so found.

      Petitioners resided in Missouri at the time they filed the petition.

      During 2011, petitioners Donald A. Wesley (Mr. Wesley) and Sandra F.

Wesley (Ms. Wesley) operated Disciples Empowered by Christ Ministries, a

community outreach program. (We shall sometimes refer to Disciples Empowered

by Christ Ministries as the ministry.) At all relevant times, petitioner Mr. Wesley

served as pastor of the ministry. In his capacity as pastor, Mr. Wesley controlled

the ministry.

      Petitioners timely filed a tax return (return) for their taxable year 2011.

Petitioners attached to that return Schedule A, Itemized Deductions, and claimed a

charitable contribution deduction of $28,697.
                                        -3-

[*3] Respondent issued to petitioners a notice of deficiency (notice) for their

taxable year 2011. In that notice, respondent determined, inter alia, that

petitioners are liable for their taxable year 2011 for the accuracy-related penalty

under section 6662(a).2

      After respondent issued the notice to petitioners, petitioners submitted to

respondent Form 1040X, Amended U.S. Individual Income Tax Return (amended

return), for their taxable year 2011. In petitioners’ amended return, petitioners

showed, inter alia, an additional deduction for claimed charitable contributions in

excess of the amount that they had claimed in their return and that respondent did

not disallow in the notice.

                                     OPINION

      Petitioners bear the burden of establishing that the determinations in the

notice that remain at issue are erroneous.3 See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). Deductions are a matter of legislative grace, and

petitioners must prove their entitlement to any deductions claimed. See

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The Code and the


      2
      Respondent did not disallow the charitable contribution deduction of
$28,697 that petitioners claimed in their 2011 return.
      3
      Petitioners concede that they have unreported income of $50,830 that
respondent determined in the notice.
                                         -4-

[*4] regulations thereunder required petitioners to maintain records sufficient to

establish the amount of any deduction claimed. See sec. 6001; sec. 1.6001-1(a),

Income Tax Regs.

      We consider first petitioners’ position that, in addition to the charitable

contribution deduction that they had claimed in their 2011 return and that

respondent did not disallow in the notice, they are entitled to a charitable

contribution deduction of $3,976.514 for contributions that they claim they made

during 2011 to or for the use of the ministry. (We shall refer to the additional

charitable contribution deduction of $3,976.51 that petitioners are claiming here as

the charitable contribution amount at issue.) In support of their position,

petitioners rely on their respective testimonies and certain documents, each of

which is titled “Contributions Statement”. (We shall refer to the documents titled

“Contributions Statements” as petitioners’ claimed documents.5)


      4
       We have increased the charitable contribution amount at issue to correct a
73-cent error made in one of the parties’ stipulations of facts. See Cal-Maine
Foods, Inc., 93 T.C. 181, 195 (1989).
      5
       The heading at the top of each of petitioners’ claimed documents is
“Disciples Empowered by Christ Ministries”. In addition to petitioners’ names
and address, each of those documents shows a date on which the document was
purportedly prepared (purported preparation date) and describes the contribution
that was purportedly made to the ministry. The bottom of each of petitioners’
claimed documents states in pertinent part: “Thank you so much for your
                                                                     (continued...)
                                        -5-

[*5] With respect to the respective testimonies of Mr. Wesley and Ms. Wesley,

we found their testimonies to be in certain material respects uncorroborated and

self-serving. We shall not rely on the respective testimonies of Mr. Wesley and

Ms. Wesley to establish petitioners’ position that they are entitled to deduct the

charitable contribution amount at issue. See, e.g., Tokarski v. Commissioner, 87

T.C. 74, 77 (1986).

      With respect to petitioners’ claimed documents, Mr. Wesley acknowledged

during his testimony that he “manufactured” those documents in 2014,

approximately three years after petitioners’ taxable year at issue. Nonetheless, the

respective purported preparation dates on many of petitioners’ claimed documents

show a date in 2011, not in 2014. By way of further illustration of the unreliable

nature of petitioners’ claimed documents, one of petitioners’ claimed documents

shows a contribution purportedly made to the ministry when in fact, as Mr. Wesley

acknowledged at trial, the amount shown on that document was purportedly given

to United Way. Another of petitioners’ claimed documents shows a contribution

purportedly made to the ministry when in fact, as Mr. Wesley acknowledged at

trial, the amount shown on that document was paid by use of a credit card in the


      5
       (...continued)
contributions.”
                                         -6-

[*6] name of the ministry, not a credit card in the name of petitioners. We shall

not rely on petitioners’ claimed documents to establish petitioners’ position that

they are entitled to deduct the charitable contribution amount at issue.

      Section 170(a) allows a deduction for any charitable contribution, as defined

in section 170(c), that is made during a taxable year. A taxpayer claiming a

deduction under section 170(a) must satisfy certain statutory and regulatory

requirements. (We shall refer collectively to the statutory and regulatory

requirements as the charitable contribution deduction requirements.) See sec.

170(a), (c), (f); secs. 1.170A-1, 1.170A-13(a)-(c), Income Tax Regs. The

charitable contribution deduction requirements that a taxpayer must satisfy vary

depending on (1) whether the claimed contribution consists of money or property

other than money and (2) the value of the contribution. See sec. 170(a), (c), (f);

secs. 1.170A-1, 1.170A-13(a)-(c), Income Tax Regs. On the record before us, we

find that petitioners have failed to carry their burden of establishing that they

satisfy the applicable charitable contribution deduction requirements with respect

to the charitable contribution amount at issue.

      On the record before us, we find that petitioners have failed to carry their

burden of establishing that they are entitled to deduct under section 170(a) the

charitable contribution amount at issue.
                                         -7-

[*7] We consider now the accuracy-related penalty under section 6662(a) that

respondent determined in the notice. That section imposes an accuracy-related

penalty of 20 percent of the underpayment to which section 6662 applies. Section

6662 applies to the portion of any underpayment which is attributable to, inter alia,

(1) negligence or disregard of rules or regulations, sec. 6662(b)(1), or (2) a

substantial understatement of tax, sec. 6662(b)(2). Respondent argues that

petitioners are liable for their taxable year 2011 for the accuracy-related penalty

because of negligence or disregard of rules or regulations and because of a

substantial understatement of tax.

      The term “negligence” in section 6662(b)(1) includes any failure to make a

reasonable attempt to comply with the Code. Sec. 6662(c). Negligence has also

been defined as a failure to do what a reasonable person would do under the

circumstances. Leuhsler v. Commissioner, 963 F.2d 907, 910 (6th Cir. 1992),

aff’g T.C. Memo. 1991-179; Antonides v. Commissioner, 91 T.C. 686, 699

(1988), aff’d, 893 F.2d 656 (4th Cir. 1990). The term “negligence” also includes

any failure by the taxpayer to keep adequate books and records or to substantiate

items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. The term “disregard”

includes any careless, reckless, or intentional disregard. Sec. 6662(c).
                                         -8-

[*8] For purposes of section 6662(b)(2), an understatement is equal to the excess

of the amount of tax required to be shown in the tax return over the amount of tax

shown in the return. Sec. 6662(d)(2)(A). An understatement is substantial in the

case of an individual if the amount of the understatement for the taxable year

exceeds the greater of 10 percent of the tax required to be shown in the tax return

for that year or $5,000. Sec. 6662(d)(1)(A).

      The accuracy-related penalty under section 6662(a) does not apply to any

portion of an underpayment if it is shown that there was reasonable cause for, and

that the taxpayer acted in good faith with respect to, such portion. Sec.

6664(c)(1). The determination of whether the taxpayer acted with reasonable

cause and in good faith depends on all the pertinent facts and circumstances,

including the taxpayer’s efforts to assess the taxpayer’s proper tax liability, the

knowledge and experience of the taxpayer, and the reliance on the advice of a

professional, such as an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs.

      Respondent bears the burden of production with respect to the accuracy-

related penalty under section 6662(a) that respondent determined in the notice.

See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To

satisfy respondent’s burden of production, respondent must come forward with

“sufficient evidence indicating that it is appropriate to impose” the penalty.
                                        -9-

[*9] Higbee v. Commissioner, 116 T.C. at 446. Although respondent bears the

burden of production with respect to the penalty under section 6662(a), respondent

“need not introduce evidence regarding reasonable cause * * * or similar

provisions. * * * [T]he taxpayer bears the burden of proof with regard to those

issues.” Id.

      Petitioners concede that they have the unreported income of $50,830 that

respondent determined in the notice.6 On the record before us, we find that

respondent has satisfied respondent’s burden of production under section 7491(c)

with respect to the accuracy-related penalty under section 6662(a).

      Section 1.6662-3(b)(1)(i) of the Income Tax Regulations provides that

negligence is strongly indicated where “[a] taxpayer fails to include [i]n an income

tax return an amount of income shown [i]n an information return”. Petitioners

present the following argument as to why they were not negligent:

      The petitioners acknowledge their lack of due diligence regarding the
      timeliness of filing the original 2011 1040 form. * * * The petitioners
      did eventually file a return for 2011 [using Form] 1040X and when
      they realized their mistake, they did attempt to rectify it by
      maintaining dialogue with the local IRS Office and the U.S. Tax
      Courts [sic]. * * * They did report their correct income to the IRS.




      6
          See supra note 3.
                                         - 10 -

[*10] We do not understand how petitioners’ above-quoted argument relates to

whether the accuracy-related penalty should be imposed on them for their taxable

year 2011, let alone how it establishes that they are not liable for that year for that

penalty. On the record before us, we find that petitioners have failed to meet their

burden of proving that they were not negligent in failing to include $50,830 of

unreported income in their 2011 return.

      On the record before us, we find that petitioners have failed to carry their

burden of establishing that there was reasonable cause for, and that they acted in

good faith with respect to, the underpayment for their taxable year 2011.

      On the record before us, we find that petitioners have failed to carry their

burden of establishing that they are not liable for their taxable year 2011 for the

accuracy-related penalty under section 6662(a).7




      7
       We found that petitioners are liable for the accuracy-related penalty under
sec. 6662(a) because of negligence. As a result, we need not address respondent’s
alternative argument that petitioners are liable for the accuracy-related penalty
because of a substantial understatement of tax under sec. 6662(b)(2).
                                      - 11 -

[*11] We have considered all of the contentions and arguments of petitioners8 and

respondent that are not discussed herein, and we find them to be without merit,

irrelevant, and/or moot.

      To reflect the foregoing and petitioners’ concession,


                                               Decision will be entered for

                                      respondent.




      8
       We have considered, inter alia, petitioners’ argument that Cohan v.
Commissioner, 39 F.2d 540 (2d Cir. 1930), entitles petitioners to deduct under sec.
170(a) the charitable contribution amount at issue. We have concluded that Cohan
is inapposite to our resolution of that issue.
