                  T.C. Summary Opinion 2001-51



                     UNITED STATES TAX COURT



       JOHN WILLIAM BARCK & JANIE R. BARCK, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3170-99S.                 Filed April 5, 2001.



     John William Barck and Janie R. Barck, pro sese.

     Charles M. Berlau, for respondent.



     DINAN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                              - 2 -

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined deficiencies in petitioners’ Federal

income taxes of $12,278, $6,142, and $7,074 and accuracy-related

penalties of $2,456, $1,228, and $1,415 for the taxable years

1993, 1994, and 1995.

     After concessions, the issues for decision are:   (1) Whether

petitioners are entitled to charitable contribution deductions in

excess of the amounts allowed and conceded by respondent for 1993

and 1994; (2) whether petitioners recognized unreported gain on

the sale of certain property in 1993; (3) whether petitioners

made deductible interest payments in 1994 and 1995 that were not

claimed as deductions on their returns; and (4) whether

petitioners are liable for the accuracy-related penalties under

section 6662(a).1

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

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

Ashland, Missouri, on the date the petition was filed in this

case.


     1
      With respect to issues one and two, respondent concedes
petitioners are entitled to an additional deduction for
charitable contributions in 1993 and a reduction in the amount of
the gain recognized, as discussed below. We treat determinations
made in the notice of deficiency but not addressed here as having
been conceded by petitioners because they were not disputed
either in the petition or at trial.
                               - 3 -

     The first issue for decision is whether petitioners are

entitled to charitable contribution deductions in excess of the

amounts allowed by respondent for 1993 and 1994.

     A taxpayer is required to maintain records sufficient to

establish the amount of his deductions.    See sec. 6001; sec.

1.6001-1(a) and (e), Income Tax Regs.     In the event that a

taxpayer establishes that a deductible expense has been paid but

is unable to substantiate the precise amount, we generally may

estimate the amount of the deductible expense bearing heavily

against the taxpayer whose inexactitude in substantiating the

amount of the expense is of his own making.    See Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).     We may

estimate a deductible expense only where the taxpayer presents

evidence sufficient to provide some basis upon which an estimate

may be made.   See Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).   Certain expenses related to travel, entertainment,

gifts, and listed property (as defined in section 280F(d)(4)) are

additionally subject to the strict substantiation requirements of

section 274(d).   See sec. 274(d); sec. 1.274-5T(b), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

     Section 170(a) allows a deduction for charitable

contributions made during the taxable year to certain listed

types of organizations, if the deductions are verified under

regulations prescribed by the Secretary.    See sec. 170(a)(1);
                                - 4 -

sec. 1.170A-13, Income Tax Regs.    To be deductible, contributions

must be made “to or for the use of” organizations listed in

section 170(c)(1)-(5).    Sec. 170(c).   The phrase “for the use of”

was added by Congress to allow a deduction for gifts made in

trust for a charitable organization or under a similar legal

arrangement creating rights which may be legally enforced by the

organization; gifts made to an individual for the use of a

charity do not meet the requirements for deductibility in the

absence of such an arrangement.    See Davis v. United States, 495

U.S. 472 (1990).

     In 1993, petitioners claimed a deduction of $9,329 for

charitable contributions.    Respondent allowed $4,557 of this

amount in the notice of deficiency and has since conceded an

additional $1,840.    In 1994, petitioners claimed a deduction of

$7,000 for charitable contributions.     Respondent allowed $1,665

of this amount.

     Petitioner husband (petitioner) testified that the amounts

disallowed and not conceded by respondent for 1993 were

contributions made by him in cash, primarily when attending

church.   Petitioner has no written records evidencing such

contributions.    Without written records, a deduction for

charitable contributions generally is not allowed.    See sec.

1.170A-13, Income Tax Regs.    In certain circumstances, however,

we have applied Cohan v. Commissioner, supra, to allow a
                                - 5 -

deduction even without written records where a taxpayer provides

a sufficient basis to estimate the amount of the contributions,

such as showing regular church attendance and regular cash

contributions thereto.    See, e.g., Fontanilla v. Commissioner,

T.C. Memo. 1999-156; Meeks v. Commissioner, T.C. Memo. 1998-109,

affd. 208 F.3d 221 (9th Cir. 2000); Drake v. Commissioner, T.C.

Memo. 1997-487.   Petitioner attended church every Sunday and

often donated cash, even when he traveled.    However, he failed to

establish any regularity in occurrence or extent of the donations

from which we could estimate an amount.    Thus, petitioners are

not entitled to a charitable contribution deduction for 1993 in

excess of $6,397.

     The amounts disallowed in 1994 all relate to contributions

made to Eugene Brown.    Mr. Brown served as president of the Full

Gospel Business Men’s Fellowship International (FGBMFI).    The

disallowed contributions consist of an automobile which they

valued at $5,000 and cash of $335 in the form of checks made

payable to the order of Gene Brown.     Petitioners testified that

the car was given to FGBMFI.    However, the car was titled solely

in Mr. Brown’s name.    In addition, Mr. Brown provided a

handwritten statement that the car was given to him as a gift by

petitioner.   Despite petitioners’ testimony, it is clear that the

car was transferred from petitioners to Mr. Brown individually

and not to the charitable organization.    Thus, the disallowed
                              - 6 -
contributions in 1994 were not made “to” a qualified

organization, and they were not made “for the use of” such an

organization within the meaning of the statute because there was

no trust-like arrangement creating legally enforceable rights for

the organization.      See Davis v. United States, supra.       Although

petitioners’ actions may have been entirely altruistic and

intended to benefit FGBMFI, the contributions are not deductible

for Federal income tax purposes.         Petitioners are not entitled to

a charitable contribution deduction for 1994 in excess of $1,665.

     The second issue for decision is whether petitioners must

include in income gain on the sale of certain property in 1993.

     Under sections 61(a) and 1001(c), taxpayers generally must

recognize in the year of sale all gain or loss realized upon the

sale or exchange of property.

     Respondent determined that petitioner recognized gain of

$28,462 on the sale of a 1989 Kenworth tractor and 1991

Transcraft flatbed trailer.      According to respondent’s trial

memorandum, the gain was determined as follows (petitioner

disputes this calculation):

                                Tractor              Trailer

     Sales price                       $28,843              $9,157
     Cost                   $60,000              $19,050
     Depreciation           (57,777)             (11,735)
     Adjusted basis                    (2,223)              (7,315)
     Recognized gain                   26,620                1,842

Thus, respondent determined the total sales price for tractor and

trailer to be $38,000.     Respondent has conceded that the total
                              - 7 -
gain be reduced by $5,084 to reflect the cost of an engine

overhaul for the tractor.

     Respondent offers the following three checks as the basis of

his determination of the purchase price.          Each check is a

cashier’s check, drawn on London Bank & Trust of London,

Kentucky, with Gary and Fairy Smith (the purchasers of the

tractor and trailer) as remitters.

     Number Check Date   Amount Payment Date        Payee           Indorser
     091724   9/14/93      $500   9/15/93    Gary or Fairy Smith   Gary Smith1
     091725   9/14/93    24,000   9/17/93    Petitioner            Petitioner2
     091726   9/14/93    13,500   9/20/93    Petitioner            Petitioner3
     1
       Blank indorsement
     2
       Blank indorsement
     3
       Indorsed for petitioner by petitioner wife, for deposit only

At trial, petitioners disputed receiving two of these checks--

numbers 091724 and 091726.       Evidence received into the record,

however, shows that check number 091726 was received by

petitioners because it was indorsed “for deposit only,” “Will

Barck by Janie Barck.”      The purpose of the other disputed check,

number 091724, is unclear; why the purchasers would obtain a

cashier’s check payable to themselves is unknown.            Respondent

argues that this check was used by the purchaser as a retainer in

a “good-faith effort in the sale.”         Although there is no evidence

that petitioners received the cashier’s check itself, the

proximity of the check number, check date, and payment date of

the disputed check to those of the other checks indicates that

this amount was most likely given to petitioners in cash for a
                              - 8 -
down payment or for a similar purpose, as respondent argues.     We

therefore uphold respondent’s determination of the amount of gain

recognized on this transaction, as modified by the concession.

     The third issue for decision is whether petitioners made

deductible interest payments in 1994 and 1995 that were not

claimed as deductions on their returns.

     Interest is allowed as a deduction to non-corporate

taxpayers under section 163(a) only if it is not “personal

interest” as defined under section 163(h)(2).   See sec.

163(h)(1).   Interest which is not personal interest and therefore

may be deducted unless otherwise not allowed includes:     (1)

interest paid or accrued on indebtedness properly allocable to a

trade or business other than that of performing services as an

employee; (2) any investment interest; and (3) any interest which

is taken into account under section 469 in computing income or

loss from a passive activity of the taxpayer.   See sec.

163(h)(2)(A), (B), and (C).

     Petitioners argue that petitioner borrowed $60,000 from his

sister for use in starting a “rental real estate” business.2


     2
      Petitioners made this argument for the first time at trial,
but respondent did not object either to petitioners’ argument or
to their presentation of supporting evidence. We therefore treat
this issue as having been properly pled. See Rule 41(b)(1)
(“When issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings.”); Parekh
v. Commissioner, T.C. Memo. 1998-151 (Rule 41(b) was satisfied
                                                   (continued...)
                              - 9 -
Petitioner testified that he paid $6,000 in interest per year in

1994 and 1995, in monthly payments of $500 each.   However, he

only established that he made the monthly payments in February,

March, May, and July through December 1994, and January through

October 1995.   Petitioner repaid the principal in two payments of

$30,000 each, one in December 1996 and the other in October

1997.3   Petitioners filed Schedules C, Profit or Loss From

Business, for an unnamed business in 1994 and 1995.   In the

notice of deficiency, respondent determined that petitioners

improperly reported income and claimed expenses on these

Schedules C, and instead should have used Schedules E,

Supplemental Income and Loss, because the income and expenses

were related to rental activities.4   Although significant

deductions were allowed by respondent in connection with this


     2
      (...continued)
when the parties “introduced the issue at trial and acquiesced in
the introduction of evidence on that issue without objection.”).
     3
      Nearly all the payments were in the form of checks drawn on
accounts in the name of Will or Janie Barck. However, the
payment made in May 1994 was drawn on an account in the name of
Barck, Inc. Whether such a corporation actually existed is
unclear from the record. If it did not, this account was most
likely used by petitioner informally for individual business
purposes. In any event, we accept petitioner’s testimony that he
intermingled funds between his accounts and that he used
individual funds deposited into the Barck, Inc. account to make
the interest payment.
     4
      Petitioners also filed a Schedule C in 1993 for a business
involved in “mobile home rent.” It is unclear if this is the
same rental activity as that in which petitioners were engaged in
1994 and 1995.
                              - 10 -
activity for mortgage interest in each year, no deductions were

allowed for “other interest.”       The Schedule E rental income and

expense deductions set forth in the notice of deficiency were as

follows:

                                         1994                1995

     Income                                  $32,019             $81,603
     Expenses
           Advertising                $300                $117
           Car & truck               2,085               5,204
           Cleaning & maintenance       26                -0-
           Legal & professional        159                -0-
           Mortgage interest         8,087              13,885
           Repairs & maintenance    10,729              10,066
           Supplies                    592                -0-
           Taxes & licenses            582               1,885
           Utilities                 1,404               4,139
           Lot rent                  5,770              15,715
           Wages                      -0-                2,583
           Insurance                 1,179               3,721
           Depreciation              1,323               6,701
           Other                       214                -0-
           Total                              32,450              64,016
     Sch. E rental income (loss)                (431)             17,587

     We accept petitioner’s testimony concerning the existence

and nature of the $60,000 loan, corroborated by the above

detailed payments and respondent’s determination that petitioners

were conducting a rental activity in 1994 and 1995.         We hold that

petitioners are entitled to rental expense deductions for

interest payments of $4,500 in 1994 and $5,000 in 1995.

     We briefly note that respondent has not argued that

petitioner’s rental activity was either passive or related to

property held for investment.       See sec. 163(d); sec. 469.

Nothing in the record indicates that the additional deductions

allowed by our holding in this case are limited under either

section 163(d) or section 469, and we so hold.
                              - 11 -
     The final issue for decision is whether petitioners are

liable for the accuracy-related penalties under section 6662(a).

     Section 6662(a) imposes a 20-percent penalty on the portion

of an underpayment attributable to any one of various factors,

including (1) negligence or disregard of rules or regulations;

and (2) any substantial understatement of income tax.   See sec.

6662(b)(1) and (2).   Respondent determined that petitioners are

liable, with respect to each year in issue, for an accuracy-

related penalty due to one or both of these factors for an

underpayment equal to the total amount of the deficiency.

     “Negligence” includes any failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue

Code, see sec. 6662(c), including any failure to keep adequate

books and records or to substantiate items properly, see sec.

l.6662-3(b)(1), Income Tax Regs.   “Disregard” includes any

careless, reckless, or intentional disregard.   See sec. 6662(c).

     A “substantial understatement” exists where the amount of

the understatement exceeds the greater of 10 percent of the tax

required to be shown on the return or $5,000.   See sec.

6662(d)(1)(A).   For purposes of this computation, the amount of

the understatement is reduced to the extent attributable to an

item:   (1) If there exists or existed substantial authority for

the taxpayer’s treatment of the item; or (2) if the relevant

facts affecting the treatment of the item are adequately
                              - 12 -
disclosed on the taxpayer’s return or an attached statement, and

there is a reasonable basis for the taxpayer’s treatment of the

item.     See sec. 6662(d)(2)(B).

     Section 6664(c)(1) provides that the penalty under section

6662(a) shall not apply to any portion of an underpayment if it

is shown that there was reasonable cause for the taxpayer’s

position and that the taxpayer acted in good faith with respect

to that portion.     The determination of whether a taxpayer acted

with reasonable cause and in good faith is made on a case-by-case

basis, taking into account all the pertinent facts and

circumstances.     See sec. 1.6664-4(b)(1), Income Tax Regs.   The

most important factor is the extent of the taxpayer’s effort to

assess his proper tax liability for the year.     See id.

        Petitioners dispute the assertion of the accuracy-related

penalties, but have not presented any evidence or arguments

specifically addressing this issue.     We find that the record in

its entirety supports respondent’s assertion of the penalties in

this case, and we therefore uphold respondent’s determination in

this regard, as modified by respondent’s concessions and our

holding on the other issues in this case.

        Reviewed and adopted as the report of the Small Tax Case

Division.
                         - 13 -
To reflect the foregoing,

                              Decision will be entered

                         under Rule 155.
