T.C. Summary Opinion 2011-54
UNITED STATES TAX COURT
BRIDGETT JEANETTE BELL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8048-08S. Filed April 18, 2011.
Bridgett Jeanette Bell, pro se.
John T. Arthur and Jennifer Records (student), for
respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463.1 Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the
relevant period. Rule references are to the Tax Court Rules of
Practice and Procedure.
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and this opinion shall not be treated as precedent for any other
case.
In a notice of deficiency dated January 31, 2008, respondent
determined a $9,527 deficiency in, and a $2,333.75 section
6651(a)(1) addition to tax with respect to, petitioner’s 2004
Federal income tax.
After concessions,2 the issue for decision is whether
petitioner is entitled to a charitable contribution deduction for
noncash contributions.
Background
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioner resided in
Georgia.
In 2001 petitioner organized and caused to be incorporated
Holistic Opportunities for Mental Empowerment (HOME) which later
qualified as an organization described in section 501(c)(3). At
all times relevant HOME was listed in Internal Revenue Service
Publication 78, Cumulative List of Organizations described in
Section 170(c) of the Internal Revenue Code of 1986. At least as
far back as May 2003 HOME maintained a checking account with
2
Respondent concedes that petitioner is entitled to a
deduction for the cash contributions claimed on her 2004 Federal
income tax return. Petitioner concedes that she is liable for a
sec. 6651(a)(1) addition to tax.
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Compass Bank (HOME’s checking account). For reasons not entirely
clear to the Court, from time to time petitioner directly paid
HOME-related expenses rather than making a donation to HOME so
the expense could be paid from HOME’s checking account.
During 2004 HOME was managed by a five-member board of
directors including petitioner, who served as the president of
the board; Jennie Bell (petitioner’s mother); and another
individual with the surname Bell. Although a member of HOME’s
board, petitioner had no voting rights.
For 3 months during 2004 HOME conducted literacy classes at
Good Shepherd Missionary Baptist Church (Good Shepherd) in
Houston, Texas (the literacy program). At all times relevant,
petitioner was a member of Good Shepherd. The literacy program
was supervised by petitioner’s mother, who used her cell phone in
connection with the program. Members of Good Shepherd
volunteered to teach the classes offered through the literacy
program.
Good Shepherd owned a house on property across the street
from its church. During 2004 Good Shepherd decided to use the
property as a parking lot, but first the house had to be razed or
moved. Petitioner agreed to move the house (the relocated house)
at her expense to property that she had acquired in 1999 in
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Cleveland, Texas (the Cleveland property).3 Cleveland, Texas, is
about 50 miles from Houston, Texas.
On an application for a building permit dated June 1, 2004,
submitted to the City of Cleveland in connection with a
foundation to be constructed on the Cleveland property to support
the relocated house, petitioner indicated that her mother was the
owner of the property and that petitioner had “been authorized by
the owner or owners to act as agent in procuring the permit
herein requested.” In a one-page letter dated September 2004
addressed to petitioner’s mother, Thompson Foundation Repair from
Houston, Texas, estimated that repairs to the relocated house
would cost approximately $22,500 (the repair estimate);
petitioner’s signature indicating acceptance of the terms of the
repair estimate is shown on the bottom of the document.
At the start of 2004 petitioner, who holds a bachelor’s
degree in business from the University of Houston, was employed
as an adult education teacher with North Harris Community College
in Houston, Texas. During 2004 petitioner moved from Houston to
Atlanta, Georgia, to accept an adult education teaching position
with Atlanta Metropolitan College.
3
Petitioner purchased the Cleveland property as a single
parcel of land and subsequently subdivided it into two adjacent
parcels. For purposes of simplicity, we refer to the Cleveland
property as a single parcel.
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During 2004 petitioner incurred various expenses on behalf
of HOME relating to: (1) Attending board meetings and
conventions; (2) attending the luncheons for board members and
volunteers; (3) conducting workshops; and (4) training
volunteers. Some of the expenses relate to travel between: (1)
Various locations in and around Houston, Texas; (2) Atlanta,
Georgia, and Houston, Texas; (2) Atlanta, Georgia, and Memphis,
Tennessee; and (4) Atlanta, Georgia, and Miami, Florida.
During 2004 Petitioner maintained two joint checking
accounts with her mother. As relevant here, canceled checks from
the joint accounts evidence payments for: (1) Expenses related
to the literacy program; (2) cell phone charges for petitioner’s
mother; (3) expenses related to the move, repair, and renovation
of the relocated house; (3) office supplies; and (4) travel
expenses, including the costs of meals and lodging.
Petitioner’s self-prepared, timely filed 2004 Federal income
tax return includes a Schedule A, Itemized Deductions. On the
Schedule A petitioner claims a deduction for charitable
contributions of $37,274. That deduction includes: (1) Cash
donations made directly to Good Shepherd and/or HOME and not in
dispute; (2) the $7,920 value of the Cleveland property; (3) the
$10,944.50 cost of moving the relocated house; (4) the cost of
repairing and renovating the relocated house, the precise amount
of which cannot be determined from the record; (5) travel
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expenses of $2,692; and (6) cell phone expenses, the precise
amount of which cannot be determined from the record.
In the notice of deficiency, respondent disallowed the
entire charitable contribution deduction because, as explained in
the notice, petitioner “did not establish that the amounts shown
were (a) contributions, and (b) paid”.
Discussion
We begin by noting, as we have observed in countless
opinions, that deductions are a matter of legislative grace and
the taxpayer bears the burden of proof to establish entitlement
to any claimed deduction.4 Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). This burden requires the
taxpayer to substantiate claimed deductions by keeping and
producing adequate records that enable the Commissioner to
determine the taxpayer’s correct tax liability. Sec. 6001;
Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam
540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C.
824, 831-832 (1965). A taxpayer claiming a deduction on a
Federal income tax return must demonstrate that the deduction is
allowable pursuant to some statutory provision and must further
substantiate that the expense to which the deduction relates has
4
Petitioner does not claim that the provisions of sec.
7491(a) are applicable, and we proceed as though they are not.
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been paid or incurred. See sec. 6001; Hradesky v. Commissioner,
supra; sec. 1.6001-1(a), Income Tax Regs.
In general, and subject to numerous conditions and
limitations, a taxpayer is allowed to deduct any contributions or
gifts made during the year to qualifying organizations for their
use. See sec. 170(a). The pretrial memoranda submitted by the
parties demonstrate that the parties, for the most part, agree on
the technical application of section 170 and its corresponding
regulations. Consequently, little technical discussion is
necessary here. Instead, their dispute reduces to various
factual disagreements, and we turn our attention to those
disagreements.
According to petitioner: (1) She donated the Cleveland
property to HOME in June 2004, and the relocated house was moved
there to be used by HOME; (2) the travel expenses all relate to
trips incurred on behalf of HOME; and (3) other expenses, such as
her mother’s cell phone charges and office supplies, although
paid to third parties, were paid for goods and/or services used
by, or for the benefit of HOME.
According to respondent petitioner has failed to establish
that: (1) She conveyed legal title to the Cleveland property to
HOME during 2004. Consequently the value of the Cleveland
property and the costs incurred to have the relocated house moved
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there may not be deducted; (2) amounts paid to third parties were
paid on behalf of HOME; and (3) travel expenses included in the
charitable contribution deduction are other than nondeductible
personal expenses. See sec. 262.
Petitioner acknowledges that the original deeds showing the
transfer of the Cleveland property to HOME in 2004 have not been
recorded and, for reasons not fully explained, are no longer
available. According to the deeds, the Cleveland property,
together with the relocated house, was conveyed to HOME on May
17, 2004. At trial she produced copies of deeds prepared and
notarized in February 2009. Copies of similar, but not
identical, deeds apparently provided to respondent during the
examination of petitioner’s 2004 return show a signature line for
petitioner’s mother. There is no signature line for petitioner’s
mother on the copies of the deeds notarized in February 2009.
I. Cleveland Property and Relocated House
The charitable contribution deduction petitioner claimed on
her 2004 return includes: (1) The value of the Cleveland
property;5 and (2) the costs of moving and repairing the
relocated house. According to petitioner, she donated the
Cleveland property to HOME during 2004 and paid the expenses to
5
The value of the property as shown on petitioner’s return
is not in dispute.
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have the relocated house moved there so it could be used by HOME
in pursuit of its charitable goals.6
Several factors are examined in determining whether and when
a gift, including a charitable contribution, has been made or is
complete. See Guest v. Commissioner, 77 T.C. 9, 15-16 (1981).
Among and in addition to other requirements, a donor claiming to
have made a gift to a donee must establish that legal title to
the gift has been irrevocably transferred from the donor to the
donee. Id. at 15-16; Weil v. Commissioner, 31 B.T.A. 899, 906
(1934), affd. 82 F.2d 561 (5th Cir. 1936). If, as here, the gift
is an interest in real property, then normally the transfer of
legal title is evidenced by deed or the equivalent of a deed.
Furthermore, if, as here, the gift is made between related
parties, then the transaction warrants close scrutiny. See
Kimbell v. United States, 371 F.3d 257, 265 (5th Cir. 2004);
Estate of Bongard v. Commissioner, 124 T.C. 95, 123 (2005).
The parties agree that Texas law controls whether title to
the Cleveland property was effectively transferred to HOME in
2004. See United States v. Natl. Bank of Commerce, 472 U.S. 713,
722 (1985) (quoting Aquilino v. United States, 363 U.S. 509, 513
(1960)). Under Texas law, conveyance by deed requires delivery
of the deed. Tex. Prop. Code Ann. sec. 5.021 (West 2004); Noell
6
As of the date of trial, the relocated house had not been
renovated to an extent to make it functional.
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v. Crow-Billingsley Air Park Ltd. Pship., 233 S.W.3d 408, 415
(Tex. App. 2007). Delivery of a deed is effective if (1) the
grantor places the deed within the control of the grantee (2)
with the intention that the instrument become operative as a
conveyance. Noell v. Crow-Billingsley Air Park Ltd. Pship.,
supra at 415. The question of delivery of the deed is controlled
by the intent of the grantor, and it is determined by examining
all the facts and circumstances preceding, attending, and
following the execution of the instrument. Id. The best
evidence that a deed has been delivered as required, of course,
would be the original deed, or a copy of the original as
recorded.
According to petitioner, the deeds to the Cleveland property
were delivered to HOME as required. Those deeds, if delivered as
petitioner claims, have never been recorded, and the location of
the originals is unknown.
Petitioner’s position that a deed need not be recorded in
order to effectively pass title to real estate is consistent with
Texas law; under Texas law an unrecorded deed is binding on the
parties to the conveyance. Id. at 416-417 (citing Tex. Prop.
Code. Ann. Sec. 13.001(b) (West 2004)). Be that as it may,
petitioner’s entitlement to a charitable contribution deduction
for the Cleveland property faces other obstacles.
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First, we are concerned with petitioner’s failure to produce
copies of the original deeds. She is, and was at all times
relevant, an executive officer of HOME and no doubt had access to
the financial and asset records of the organization. Second, and
perhaps more troubling, within months after the deeds to the
Cleveland property were claimed to have been executed and
delivered, petitioner shows her mother as the owner of the
property on an application for a building permit. Third, and in
a similar vein, an estimate from a contractor regarding repairs
to the relocated house to be placed on the Cleveland property is
directed and addressed to petitioner’s mother. Because the
evidence is insufficient to support a finding that the Cleveland
property was transferred from petitioner to HOME during 2004, she
is not entitled to include the value of that property in an
otherwise allowable charitable contribution deduction for that
year.
Petitioner also included the cost of moving and repairing
the relocated house in the charitable contribution deduction
claimed on her 2004 return. The relocated house was not used by
HOME during 2004. Furthermore, because it is unclear whether
HOME obtained legal title to the relocated house during 2004,
petitioner is not entitled to any deduction for the cost of any
repairs to the house or for mileage claimed to travel between
Cleveland, Texas, and Houston, Texas, or elsewhere in connection
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with that house. Nevertheless, the expenses that she incurred to
have the relocated house moved from the Good Shepherd property
arguably provided a benefit to Good Shepherd, even though not
necessarily to HOME.
Unreimbursed expenditures made incident to the rendition of
services to a qualifying charitable organization (in this case
Good Shepherd) may constitute a deductible contribution.
Rockefeller v. Commissioner, 76 T.C. 178, 190-191 (1981), affd.
676 F.2d 35 (2d Cir. 1982); McCollum v. Commissioner, T.C. Memo.
1978-435; Miller v. Commissioner, T.C. Memo. 1975-279; sec.
1.170A-1(g), Income Tax Regs.
As best we can tell from the record, petitioner paid
$10,944.50 to have the relocated house moved from Houston, Texas,
to the Cleveland property. Presumably Good Shepherd would have
had to incur some expense to have the relocated house moved or
razed so the property on which it was located could be used as a
parking lot for the church. To the extent that Good Shepherd
realized a financial benefit in excess of the value of the
relocated house, petitioner is entitled to include that excess in
an otherwise allowable charitable contribution deduction. See
Murphy v. Commissioner, 54 T.C. 249, 252-253 (1970); see also
United States v. Am. Bar Endowment, 477 U.S. 105 (1986); sec.
1.170A-1(h), Income Tax Regs. The record does not allow the
Court to determine any such excess; however, if the information
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is in the possession of the parties, they can reflect any such
allowance in their Rule 155 computations.
II. Other Unreimbursed Expenditures
A. Travel-Related Expenses
Petitioner’s claimed charitable contribution deduction
includes $2,692 attributable to travel-related expenses for
transportation and meals and lodging that petitioner incurred in
connection with travel relating to HOME activities.
Section 1.170A-1(g), Income Tax Regs., allows as a
charitable contribution deduction transportation expenses and
reasonable expenses for meals and lodging incurred while away
from home in the course of performing donated services. Miller
v. Commissioner, supra. The phrase “while away from home” has
the same meaning as when used for purposes of section 162. Sec.
1.170A-1(g), Income Tax Regs. Petitioner’s “home” during the
relevant period of 2004 was Georgia, a point not in dispute. See
Mitchell v. Commissioner, 74 T.C. 578, 581 (1980) (a taxpayer’s
principal place of employment is his tax home).
The record shows that, among other things, petitioner
attended conventions, board meetings, and luncheons which
required her to travel between Atlanta, Georgia, and Houston,
Texas, and other locations. Because she has properly
substantiated the expenses incurred in connection with these
trips, see sec. 274(d), she is entitled to include the cost of
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the trips in her otherwise allowable charitable contribution
deduction.7
B. Expenditures Related to Office Supplies and the
Literacy Program
Petitioner’s claimed charitable contribution deduction
includes an amount attributable to expenditures related to:
(1) Office supplies; and (2) the literacy program.
To substantiate the deduction petitioner provided: (1)
Receipts and canceled checks for, among other things, office
supplies and schoolbooks; (2) cell phone account statements for
the 3-month span during which petitioner’s mother’s cell phone
was used as the contact number for the literacy program; and (3)
a statement from HOME certifying that petitioner was not
reimbursed for the expenses.
A cell phone is “listed property” and subject to the strict
substantiation requirements of section 274(d). Sec.
280F(d)(4)(A)(v). A taxpayer must establish the amount of
business use and the amount of total use for the property to
substantiate the amount of expenses for listed property. Sec.
1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg.
7
We note that sec. 170(j) prohibits a deduction for
unreimbursed travel expenses incurred incident to the rendition
of charitable services, “unless there is no significant element
of personal pleasure, recreation, or vacation in such travel.”
Although a portion of petitioner’s travel-related expenses is
attributable to trips to Houston, Texas, where some of her family
resides, there is no direct evidence suggesting that her trips to
Houston, or otherwise, contained a significant element of
personal pleasure.
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46016 (Nov. 6, 1985). Petitioner introduced cell phone bills
that partially substantiate the amounts of the claimed
deductions. Petitioner, however, failed to establish the amounts
of time that her mother used her cell phone for business and
personal purposes. Petitioner’s deduction for cell phone
expenses is disallowed.
Otherwise, we find that petitioner has adequately
substantiated expenses related to office supplies and the
literacy program, and she is therefore entitled to a charitable
contribution deduction for the costs of these items.
To reflect the foregoing,
Decision will be entered
under Rule 155.