MEMORANDUM FINDINGS OF FACT AND OPINION

WRIGHT, Judge: Respondent determined deficiencies in petitioners' Federal income tax and additions to tax as follows:

1986 Tax Ct. Memo LEXIS 218">*221 The issues to be decided are (1) whether petitioners are entitled to a charitable contribution deduction under section 170 for taxable years 1979, 1980, and 1981; (2) whether petitioners are liable for additions to tax under section 6653(a); and (3) whether petitioners are liable for damages under section 6673.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The stipulation of facts and atached exhibits are incorporated herein by this reference.

At the time they filed the petition in this case, petitioiners Lincoln L. Libby and Frances N. Libby, husband and wife, maintained a mailing address at P.O. Box 1152, Carmel Valley, California. Petitioners timely filed joint Federal income tax returns for each of the years in question with the Internal Revenue Service Center at Fresno, California.

During the taxable years in issue, petitioner Lincoln L. Libby was employed by Montersey Tire Service, Seaside, California, as a manager and received wages from Monterey Tire Service. Petitioner Frances N. Libby was employed during taxable year 1979 as a housekeeping supervisor at Rippling River Center, a United States Department of Housing and Urban Development (HUD) 1986 Tax Ct. Memo LEXIS 218">*222 facility for handicapped and disabled individuals. ⁴ During taxable year 1980, Mrs. Libby received wages from Eleanor Atkinson. Mrs. Libby received self-employment income during taxable year 1981, as well as wages from Sarah Oppenheimer and a distribution from a pension and profit-sharing plan.

Sometime prior to 1979, petitioners received a charter from the Universal Life Church, Modesto, California (ULC-Modesto), and established the Universal Life Church in the Wildwood, Carmel Valley, California (ULC-Wildwood). ULC-Wildwood has not been granted tax-exempt status under section 501(c)(3). ⁵

1986 Tax Ct. Memo LEXIS 218">*223 On their 1979 return, petitioners reported cash contributions to unnamed organizations in the amount of $3,411. Similarly, petitioners reported cash contributions to unnamed organizations in the amount of $5,056 and other than cash contributions in the amount of $150 for a total of $5,206 on their 1980 return, and cash contributions in the amount of $3,207 and other than cash contributions in the amount of $105 for a total of $3,312 on their 1981 return. ⁶ In support of the charitable contributions taken as deductions on their 1981 return, petitioners submitted a copy of their canceled check in the amount of $100 made payable to "Universal Life Church in the Wildwood."

1986 Tax Ct. Memo LEXIS 218">*224 In his notice of deficiency, respondent denied the claimed charitable contributions for lack of substantiation and for failure to meet the requirements of section 170 of the Internal Revenue Code.

OPINION

(1) Deductibility of Contributions

Under section 170, ⁷ a taxpayer is entitled to deduct contributions made to charitable organizations subject to certain limitations. In order to qualify for a deduction under section 170(c), petitioners must show (1) that the contributions were actually made; (2) that the contributions were made to a qualified tax-exempt organization; and (3) that no part of the net earnings of that organization inured to the benefit of any individual. Davis v. Commissioner,81 T.C. 806">81 T.C. 806 (1983), affd. without published opinion 767 F.2d 931">767 F.2d 931 (9th Cir. 1985); Miedaner v. Commissioner,81 T.C. 272">81 T.C. 272 (1983); McGahen v. Commissioner,76 T.C. 468">76 T.C. 468 (1981), affd. without published opinion 720 F.2d 664">720 F.2d 664 (3d Cir. 1983).

1986 Tax Ct. Memo LEXIS 218">*225 Deductions are a matter of legislative grace and petitioners bear the burden of proving their entitlement to the claimed deductions. Deputy v. duPont,308 U.S. 488">308 U.S. 488 (1940); New Colonial Ice Co. v. Helvering,292 U.S. 435">292 U.S. 435 (1934); Welch v. Helvering,290 U.S. 111">290 U.S. 111 (1933); Rule 142(a). For the following reasons, we find that petitioners have failed to meet this burden.

First, petitioners have not produced any admissible evidence which would satisfy the substantiation requiremens of section 170. Sec. 170(a)(1); sec. 1.170A-1(a)(2), Income Tax Regs. Moreover, we note that the record in this case is not entirely clear as to the nature or destination of petitioners' alleged charitable contributions. In their petition filed with this Court, petitioners contended that they had made contributions to ULC-Modesto, but only after they had written "to the Treasury Department and received a positive reply." Petitioners, however, did not produce any canceled checks or receipts evidencing contributions to ULC-Modesto. Instead, at trial, petitioners testified they they had made donations of cash and non-cash items (including beds, canes, wheelchairs, 1986 Tax Ct. Memo LEXIS 218">*226 plants and landscaping materials, and hand-crafted items such as tables, mailboxces, and a pottery wheel) to Rippling River Center (the Center), a government facility for handicapped and disabled citizens. Mr. and Mrs. Libby also testified that they held church services, counseled the Center's residents, and provided transportation which enabled many of the residents to attend medical evaluations. Mrs. Libby stated that some of the items were given by petitioners in conjunction with "the church," while other items were "purchased with church funds and then donated to the Center." Petitioners contended that these contributions were equal to or in excess of the amounts claimed on their 1979, 1980, and 1981 Federal income tax returns. Petitioners attempted to introduce receipts acknowledging their alleged contributions to the Center. ⁸ These consisted of letters signed by officers of the Citizens Association of Rippling River (the Association), as well as thank you notes written by individual residents. Three letters, one undated, were signed by former managers of the Center, acknowledging receipt of a sterero, flowers, and plants and thanking the petitioners for their acts of kindness1986 Tax Ct. Memo LEXIS 218">*227 and service to the Center residents. These receipts were not admitted into evidence at trial in this case under the rule against hearsay. See 81 T.C. 806">Davis v. Commissioner,supra at 814-815.

Second, petitioners have failed to establish that the alleged contributions were made to a qualified tax-exempt organization. Although petitioners introduced a canceled check in the amount of $100 made payable to ULC-Wildwood, in order for that contribution to be deductible, petitioners' local congregation must qualify as a tax-exempt organization under section 501(c)(3).The1986 Tax Ct. Memo LEXIS 218">*228 parties have stipulated that the charter congregation involved here was not a qualified tax-exempt organization and we agree. ⁹

With respect to the alleged contributions made to the Center, petitioners have failed to establish that the alleged contributions were donated to or for the use of a state, possession of the United States or political subdivision thereof for exclusively publish purposes as required by section 170(c)(1). Nor have petitioners established that the Association qualifies as a charitable recipient under section 170(c)(2). In this regard Ms. Thomas, resident manager during 1980 and 1981 and bookkeeper during 1979, testified that in order for a gift to be received by the Center, on behalf of the United States government, the receipt of that item or gift would have been specifically acknowledged by her as representative1986 Tax Ct. Memo LEXIS 218">*229 of the Housing Authority. However, Ms. Thomas testified that she was certain that neither the petitioners nor "their church" had made contributions or donations directly to the Center during the taxable years in issue, but if, in fact, gifts had been made, it was likely that they were given to individuals or to the Association, a group with no official authority to receive gifts on behalf of the Center. Mrs. Thomas stated that it was a common practice for citizens in the surrounding community to give gifts to individual residents. Gifts made for the benefit of specific individuals, however, are not deductible. Thomason v. Commissioner,2 T.C. 441">2 T.C. 441, 2 T.C. 441">443 (1943). Furthermore, donations of personal services, even if made to qualified organizations, are not deductible. Grant v. Commissioner,84 T.C. 809">84 T.C. 809, 84 T.C. 809">816 (1985), appeal filed (4th Cir., September 30, 1985). Only unreimbursed expenses incident to the rendition of services to a qualified charitable organization are deductible. Sec. 1.170A-1(g), Income Tax Regs.

Because petitioners have not substantiated the amounts of their claimed contributions nor shown that these contributions were made to a qualified1986 Tax Ct. Memo LEXIS 218">*230 tax-exempt organization, we conclude that they have failed to meet their burden of proof on the issue of deductibility. Therefore, we need not address the issue of whether any net earnings inured to the benefit of petitioners.

(2) Additions to Tax

Respondent has determined that petitioners are liable for additions to tax under section 6653(a). Section 6653(a)(1) provides for an addition to tax of five percent of any underpayment which is due to negligence or intentional disregard of rules or regulations. Section 6653(a)(2) provides for an addition to tax in an amount equal to 50 percent of the interest payable under section 6601 with respect to that portion of the underpayment due to negligence or intentional disregard of rules or regulations and for the period beginning on the last day prescribed by law for payment of the underpayment. See note 3, supra. Petitioners bear the burden of proof on this issue. Bixby v. Commissioner,58 T.C. 757">58 T.C. 757, 58 T.C. 757">791 (1972); Enoch v. Commissioner,57 T.C. 781">57 T.C. 781, 57 T.C. 781">802 (1972); Rule 142(a).

Petitioners introduced no evidence showing that their underpayment was not due to negligence or intentional disregard of1986 Tax Ct. Memo LEXIS 218">*231 rules and regulations. Petitioners' testimony that they stopped donating to the church in 1982 "because of the tax problems with the IRS" has no bearing on the years in issue here. We conclude that petitioners' underpayment of tax was due to negligence or intentional disregard of rules and regulations. Accordingly, we sustain respondent's determination with respect to the additions to tax under section 6653(a)(1). We also conclude, for purposes of the addition to tax under section 6653(a)(2), that all of petitioners' underpayment for 1981 was attributable to negligence or intentional disregard of rules and regulations.

We must next decide whether respondent's motion seeking damages under section 6673 should be granted. ¹⁰ We have considered the record in this particular case, and exercising our discretion, we have determined that damages pursuant to section 6673 will not be awarded in these proceedings.

1986 Tax Ct. Memo LEXIS 218">*232 Decision will be entered for the respondent.