T.C. Memo. 2017-137



                         UNITED STATES TAX COURT



         MARK ROBERT OHDE AND ROSE M. OHDE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 11688-15.                        Filed July 10, 2017.



      Floyd M. Sayre, III, for petitioners.

      Susan K. Bollman, Nancy M. Gilmore, and David A. Indek, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      LAUBER, Judge: The Internal Revenue Service (IRS or respondent) deter-

mined for petitioners’ 2011 taxable year a deficiency of $32,964 and an accuracy-
                                          -2-

[*2] related penalty of $6,593 under section 6662(a).1 After concessions,2 the

issues for decision are whether petitioners: (1) are entitled to a noncash charitable

contribution deduction of $145,250, as opposed to the deduction of $250 that the

IRS allowed and (2) are liable for the accuracy-related penalty. We resolve both

issues in respondent’s favor.

                                FINDINGS OF FACT

      The parties filed a stipulation of facts with accompanying exhibits that is

incorporated by this reference. Petitioners resided in West Virginia when they

petitioned this Court.

      Petitioners filed a timely Form 1040, U.S. Individual Income Return, for

2011. On Schedule A, Itemized Deductions, they claimed on line 17 a charitable



      1
        All statutory references are to the Internal Revenue Code (Code) in effect
for the tax year at issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure. We round all monetary amounts to the nearest dollar.
      2
         Petitioners conceded at trial that they had failed to report a $784 taxable re-
fund of State income tax. In the notice of deficiency the IRS determined that peti-
tioners had failed to substantiate a cash charitable contribution of $250 and a
$6,139 charitable contribution carryover from 2010 to 2011. Petitioners put on no
evidence concerning these issues at trial and did not address them in their post-
trial brief. They are therefore deemed to have conceded respondent’s disallow-
ance of both claimed deductions. See Mendes v. Commissioner, 

,
312-313 (2003) (holding that arguments not addressed in post-trial brief may be
considered abandoned); Leahy v. Commissioner, 

, 73-74 (1986) (find-
ing concession by failure to argue).
                                        -3-

[*3] contribution deduction of $145,250 for gifts to charity “other than by cash or

check.” The IRS disallowed all but $250 of this deduction.

      Petitioners allege that during 2011 they donated more than 20,000 distinct

items of property to Goodwill Industries (Goodwill) in Frederick, Maryland.

Goodwill is a charitable organization tax exempt under section 501(c)(3). Peti-

tioners allegedly made dozens of separate trips from their home in Shepherdstown,

West Virginia, to deliver these items to Goodwill.

      In terms of claimed dollar value, roughly half of petitioners’ alleged gifts

consisted of clothing and accessories. In this category petitioners during 2011

allegedly gave Goodwill (among other things) 1,040 items of boys’ clothing, 811

items of girls’ clothing, 658 items of men’s clothing, and 945 items of women’s

clothing. In the furniture category petitioners allegedly gave Goodwill (among

other things) 115 chairs, 36 lamps, 22 bookshelves, 20 desks, 20 chests of draw-

ers, 16 bedframes, and 14 filing cabinets. And they allegedly gave Goodwill 3,153

books. We did not find petitioners’ testimony on any of these points credible.

      For each delivery petitioners received from Goodwill a one-page printed re-

ceipt. Each receipt stated that Goodwill had received items in one or more of the

following categories: clothing, shoes, media, furniture, or household items. The

receipts did not further describe any of the items and did not indicate how many
                                         -4-

[*4] items in any category were received. Nor did the receipts include any

indication as to the items’ condition. The receipts did state: “Goodwill does not

return goods or services in exchange for donations of property.”

      At trial petitioners produced a spreadsheet generated by the TurboTax

“ItsDeductible” program. This spreadsheet listed the types of items petitioners

allegedly delivered to Goodwill on each of the trips (e.g., “boy’s socks,” “coffee

cups,” or “men’s shirts”), the number of items of each type allegedly delivered,

and the “quality” of each item. For every one of the 20,000 items, the quality is

listed as “high.” This spreadsheet was not prepared contemporaneously with the

alleged gifts, and petitioners supplied no contemporaneous records to support the

entries on this spreadsheet. We did not find petitioners’ testimony on these points

credible.

       For each of the trips petitioners’ spreadsheet shows a total dollar value for

all items allegedly delivered on that trip. These dollar values range from a low of

$830 to a high of $14,999. But the spreadsheet does not show a dollar value for

any individual item. There is no credible evidence in the record to establish the

fair market value of any of the 20,000 individual items. Petitioners likewise sup-

plied no evidence to establish their cost basis in any of these items.
                                        -5-

[*5] Petitioners included in their post-trial brief a new spreadsheet that linked

purported dollar values to the individual items. There is no evidence to establish

how petitioners determined these supposed dollar values. We will use these pur-

ported dollar values for the sole purpose of estimating how similar items of prop-

erty might be “aggregated” for charitable contribution purposes:

                     Category                       Amount

             Clothing and accessories               $71,434
             Books/music                             25,026
             Furniture                               23,370
             Toys/gaming                              9,719
             Bedding/linens                           4,840
             Kitchen items                            3,079
             Electronic equipment                     2,960
             Baby items                               2,136
             Lawn/patio                               1,485
             Sporting goods                             810
             Health/beauty                              593
             Pet supplies                               443
             Luggage                                    378
             Tools                                      189
             Musical instruments                        149
              Total                                 146,611

      Petitioners claimed large deductions for charitable contributions of property,

not only for 2011 but also for years before and after 2011. For 2007-2010 they

claimed deductions in the aggregate amount of $292,143 for noncash charitable

contributions. For 2012-2013 they claimed deductions in the aggregate amount of
                                        -6-

[*6] $104,970 for noncash charitable contributions. Petitioners testified on cross-

examination that the items they allegedly donated to Goodwill in these years were

generally similar to the types of items they allegedly donated during 2011.

      The IRS issued petitioners a timely notice of deficiency for 2011 that dis-

allowed for lack of substantiation $145,000 of their claimed deduction. The IRS

also determined an accuracy-related penalty. Petitioners timely sought redetermi-

nation in this Court.3

                                     OPINION

I.    Burden of Proof

      The IRS’ determinations in a notice of deficiency are generally presumed

correct, and the taxpayer bears the burden of proving those determinations erro-

neous. Rule 142(a); Welch v. Helvering, 

, 115 (1933). Deductions

are a matter of legislative grace; taxpayers must demonstrate their entitlement to

deductions allowed by the Code and substantiate the amounts of claimed deduc-

tions. INDOPCO, Inc. v. Commissioner, 

, 84 (1992); sec. 1.6001-1(a),

Income Tax Regs. In certain circumstances the burden of proof on factual issues

may shift to respondent. See sec. 7491(a). Petitioners have not provided “credible


      3
      Petitioners filed their petition as a small tax case. See sec. 7463(a); Rule
171. By order dated January 18, 2017, we removed the “S” designation.
                                           -7-

[*7] evidence” on the relevant factual issues, and they have not “maintained all

records” required by the Code. See id. para. (1), (2)(B). The burden of proof thus

remains on them.

II.     Charitable Contributions

        A.    Statutory Framework

        Section 170 allows as a deduction any contribution made within the taxable

year to a charitable organization. Sec. 170(a)(1), (c). Such deductions are allow-

able “only if verified under regulations prescribed by the Secretary.” Sec. 170(a);

see sec. 1.170A-13, Income Tax Regs. The nature of the required substantiation

depends on the size of the contribution and on whether it is a gift of cash or prop-

erty.

        For all contributions of property, the taxpayer must maintain reliable written

records with respect to each item donated. These records must include the name

of the donee, the date and location of the contribution, and a description of the

property “in detail reasonable under the circumstances (including the value of the

property).” Sec. 1.170A-13(b)(2)(ii)(A)-(C), Income Tax Regs. The taxpayer

must also maintain records to establish “the fair market value of the property at the

time the contribution was made * * * [and] the method utilized in determining the

fair market value.” Id. subdiv. (ii)(D).
                                        -8-

[*8] For all contributions valued at $250 or more, the taxpayer must obtain a

“contemporaneous written acknowledgment” (CWA) from the donee. Sec.

170(f)(8). The CWA must include (among other things) “a description (but not

value) of any property other than cash contributed.” Id. subpara. (B)(i). In the

absence of a CWA meeting the statute’s requirements, “[n]o deduction shall be al-

lowed.” Id. subpara. (A).

      Additional substantiation requirements are imposed for contributions of

property with a claimed value exceeding $500. Sec. 170(f)(11)(B). Still more

rigorous substantiation requirements are imposed for contributions of property

with a claimed value exceeding $5,000. Id. subpara. (C). “Similar items of

property” must be aggregated in determining whether gifts exceed the $500 and

$5,000 thresholds. See id. subpara. (F) (“For purposes of determining thresholds

under this paragraph, property and all similar items of property donated to 1 or

more donees shall be treated as 1 property.”). The term “similar items of property”

is defined to mean “property of the same generic category or type,” such as cloth-

ing, jewelry, furniture, electronic equipment, household appliances, toys, or

kitchenware. Sec. 1.170A-13(c)(7)(iii), Income Tax Regs.; see Kunkel v. Com-

missioner, T.C. Memo. 2015-71, 

, 1380; Smith v. Com-

missioner, T.C. Memo. 2014-203, 

, 386.
                                         -9-

[*9] For contributions of property valued in excess of $500, the taxpayer must

include with his return “a description of such property and such other information

as the Secretary may require.” Sec. 170(f)(11)(B). The Secretary has prescribed

regulations requiring that the taxpayer maintain records establishing “[t]he manner

of acquisition” of the property (e.g., by purchase, gift, or inheritance), the approxi-

mate date of the property’s acquisition, and the cost or adjusted basis of the prop-

erty. Sec. 1.170A-13(b)(3)(i), Income Tax Regs.; see Gaerttner v. Commissioner,

T.C. Memo. 2012-43, 

, 1226.

      For contributions of property (other than publicly traded securities) or simi-

lar items of property valued in excess of $5,000, the taxpayer must “obtain[] a

qualified appraisal of such property.” Sec. 170(f)(11)(C). He must also attach to

his return a fully completed “appraisal summary.” See sec. 1.170A-13(c)(2)(i)(B),

Income Tax Regs. The IRS has prescribed Form 8283 to be used as the “appraisal

summary.” Costello v. Commissioner, T.C. Memo. 2015-87, 

, 1445.

      B.      Analysis

      Petitioners contend that they donated to Goodwill during 2011 more than

20,000 items of property with a fair market value of at least $145,000. They have

failed woefully to satisfy the substantiation requirements for these alleged gifts.
                                         - 10 -

[*10]         1.     Contributions Generally

        For all contributions, a taxpayer must maintain reliable records that include

(among other things) a description of the property “in detail reasonable under the

circumstances (including the value of the property).” Sec. 1.170A-13(b)(2)(ii),

Income Tax Regs. The taxpayer must also maintain records to establish “the fair

market value of the property at the time the contribution was made * * * [and] the

method utilized in determining the fair market value.” Id. subdiv. (ii)(D).

        Petitioners did not maintain contemporaneous records establishing any of

these facts. We did not find their subsequently generated TurboTax spreadsheet

credible. In any event, that spreadsheet did not show an individual value for any

of the items, only an aggregate figure for the thousands of items allegedly deliv-

ered to Goodwill on a particular trip. Many of those aggregate dollar figures are

suspect on their face.4

              2.     Contributions of $250 or More

        On each trip to Goodwill petitioners contributed property with an alleged

value ranging from $830 to $14,999. They were thus required to secure CWAs for


        4
       On four occasions petitioners allegedly delivered to Goodwill items with an
aggregate value of exactly $5,000. On three occasions they allegedly delivered
items with an aggregate value of $5,008. On two occasions a week apart they al-
legedly delivered items with an aggregate value of $4,999.
                                       - 11 -

[*11] these gifts. Sec. 170(f)(8)(A). A CWA must include (among other things)

“a description (but not value) of any property other than cash contributed” and a

statement as to whether “the donee provided any goods or services in exchange for

the gift.” Id. subpara. (B).

      The receipts supplied by Goodwill satisfy the latter requirement but not the

former. The receipts do not describe the specific items contributed or indicate the

number of items of any particular type. Rather, they simply state that the items

delivered (allegedly numbering in the thousands) fell into one or more of five

general categories: clothing, shoes, media, furniture, or household items. This is

not an adequate “description * * * of any property * * * contributed” for purposes

of section 170(f)(8)(B).

             3.     Contributions Exceeding $500

      “Similar items of property” must be aggregated for purposes of determining

whether a contribution exceeds the $500 threshold. Id. para. (10)(F). Petitioners’

failure to maintain adequate records makes it impossible to perform this exercise

precisely. On the basis of admissions in petitioners’ post-trial brief, however, we

estimate that they made alleged contributions aggregating in excess of $500 for 11

categories of items. See supra p. 5. These categories cover 99.2% of the total

alleged contributions by value.
                                        - 12 -

[*12] For noncash contributions in excess of $500, taxpayers are required to

maintain reliable written records showing: (1) the approximate date the property

was acquired and the manner of its acquisition; (2) a description of the property in

detail reasonable under the circumstances; (3) the cost or other basis of the prop-

erty; (4) the fair market value of the property at the time it was contributed; and

(5) the method used in determining its fair market value. Sec. 170(f)(11)(B); sec.

1.170A-13(b)(2)(ii)(C) and (D), (3)(i)(A) and (B), Income Tax Regs. Petitioners

kept no contemporaneous records to establish any of these things.

      No deduction is allowed for “any contribution of clothing or a household

item” unless such property is “in good used condition or better.” Sec.

170(f)(16)(A). “The term ‘household items’ includes furniture, furnishings, elec-

tronics, appliances, linens, and other similar items.” Id. subpara. (D)(i). Most of

the items petitioners allegedly donated consisted of clothing, furniture, electronic

appliances, linens, and other household items. See supra pp. 3-5. Although pe-

titioners’ TurboTax spreadsheet stated that the condition of all 20,000 items was

“high,” they offered no credible evidence to support this assertion. For all these
                                        - 13 -

[*13] reasons, petitioners have not satisfied the substantiation requirements for

donations of property valued in excess of $500.5

             4.    Contributions Exceeding $5,000

      “Similar items of property” must be aggregated for purposes of determining

whether a contribution exceeds the $5,000 threshold. Sec. 170(f)(10)(F). Petition-

ers’ failure to maintain adequate records makes it impossible to perform this exer-

cise precisely. On the basis of admissions in petitioners’ post-trial brief, however,

we estimate that they made alleged contributions aggregating in excess of $5,000

for four categories of items. See supra p. 5. These categories cover 88.3% of the

total alleged contributions by value.

      For contributions valued in excess of $5,000, the taxpayer must satisfy the

substantiation requirements discussed previously and must also: (1) obtain a

“qualified appraisal” of the items and (2) attach to his tax return a fully completed

appraisal summary on Form 8283, Noncash Charitable Contributions. See sec.

170(f)(11)(C); sec. 1.170A-13(c)(2), Income Tax Regs. Petitioners did not obtain

an appraisal of any kind, much less a qualified appraisal, for any of the items. Al-


      5
        The requirement that the taxpayer establish that property was “in good used
condition or better” does not apply if he includes with his return “a qualified ap-
praisal with respect to the property.” Sec. 170(f)(16)(C). Petitioners did not
obtain or include with their return a “qualified appraisal.” See infra p. 13.
                                        - 14 -

[*14] though they attached to their 2011 return several Forms 8283, these forms

were not executed by the donee organization or by an appraiser, as is required for

contributions valued in excess of $5,000.

       In sum, petitioners have not satisfied any of the substantiation requirements

that apply to their alleged charitable gifts. We thus sustain the IRS’ determination

that $145,000 of their claimed $145,250 deduction must be disallowed.

III.   Accuracy-Related Penalty

       The Code imposes a 20% penalty upon the portion of any underpayment

attributable to (among other things) negligence or disregard of rules or regulations.

The term “negligence” includes any failure to make a reasonable attempt to com-

ply with the tax laws, and “disregard” includes any careless, reckless, or inten-

tional disregard. Sec. 6662(c). Negligence also includes any failure to keep ade-

quate books and records or to substantiate items properly. Sec. 1.6662-3(b)(1),

Income Tax Regs.; see Olive v. Commissioner, 

, 43 (2012).

       With respect to an individual taxpayer’s liability for a penalty, section

7491(c) places on the Commissioner the burden of production, thereby requiring

the Commissioner to come forward with sufficient evidence indicating that impo-

sition of a penalty is appropriate. Higbee v. Commissioner, 

, 446-447

(2001). Once the Commissioner meets his burden of production, the taxpayer
                                         - 15 -

[*15] bears the burden of proving that the IRS’ determination is incorrect. Ibid.;

see Rule 142(a); Welch v. Helvering, 290 U.S. at 115. We find that respondent

has satisfied his burden of production by showing that petitioners failed to keep

adequate records. See sec. 1.6662-3(b)(1), Income Tax Regs.6

      Section 6664(c)(1) provides an exception to the imposition of the accuracy-

related penalty if the taxpayer establishes that there was reasonable cause for, and

that he acted in good faith with respect to, the underpayment. The decision as to

whether the taxpayer acted with reasonable cause and in good faith is made on a

case-by-case basis, taking into account all pertinent facts and circumstances. See

sec. 1.6664-4(b)(1), Income Tax Regs. Circumstances that may signal reasonable

cause and good faith “include an honest misunderstanding of fact or law that is

reasonable in light of all of the facts and circumstances, including the experience,

knowledge, and education of the taxpayer.” Ibid.




      6
        Petitioners did not allege, in their petition or at trial or in their post-trial
brief, that the accuracy-related penalty at issue was not “personally approved (in
writing) by the immediate supervisor of the individual making * * * [the penalty]
determination.” See sec. 6751(b)(1). That issue is therefore deemed conceded.
See Rule 34(b)(4) (“Any issue not raised in the assignments of error shall be
deemed to be conceded.”); cf. Lloyd v. Commissioner, T.C. Memo. 2017-60, at *7
n.3 (deeming similarly conceded any section 6751(b)(1) challenge to assessable
penalties in a section 6330 levy case).
                                       - 16 -

[*16] Petitioners’ assertion that they donated more than 20,000 items to Goodwill

in a single year is implausible on its face and was unsupported by any credible

testimony or other reliable evidence. They kept no contemporaneous records es-

tablishing the number of items actually donated or the values of such items. They

do not contend that they relied on the advice of a competent tax professional in

claiming a charitable contribution deduction of $145,250. We find that petitioners

were negligent in preparing their 2011 return and that no portion of their 2011

underpayment met the “reasonable cause” exception. We will accordingly sustain

respondent’s imposition of the section 6662(a) penalty.

      To reflect the foregoing,


                                                Decision will be entered

                                      for respondent.