Bell v. Comm'r

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.
 - 2 -

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.
 - 3 -

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.
 - 7 -

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.
 - 9 -

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.
 - 10 -

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
 - 12 -

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
 - 13 -

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
 - 14 -

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.
 - 15 -

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.