1985 Tax Ct. Memo LEXIS 306 | Tax Ct. | 1985
MEMORANDUM FINDINGS OF FACT AND OPINION
WRIGHT,
1985 Tax Ct. Memo LEXIS 306">*308 The issues to be decided are (1) whether petitioner is entitled to a deduction of $13,588.50 for contributions to the Universal Life Church in 1981; (2) whether petitioner is liable for additions to tax under section 6653(a); and (3) whether petitioner is liable for damages under section 6673.
FINDINGS OF FACT
Some of the facts are stipulated and are so found.
Petitioner Hattie M. Taylor (hereinafter "petitioner") resided in Mitchellville, Maryland, when she filed the petition herein. She was not married in 1981. She married Thomas J. Taylor in 1982. Petitioner completed high school and had some post-high school education.
During 1981, petitioner was employed as a Computer Systems Analyst with the Department of Agriculture. She was employed by the government for 16 years prior to 1981 and filed income tax returns for each of those years. She personally prepared her returns in 1980 and 1981.
On her return for 1981, petitioner reported wages of $29,916 from her employment with the Department of Agriculture.
The local congregation, number 42285 of the Universal Life Church (hereinafter "local congregation"), was founded on January 12, 1981 by petitioner, her husband1985 Tax Ct. Memo LEXIS 306">*309 Thomas J. Taylor (hereinafter "Thomas"), and her husband's son Robert J. Taylor (hereinafter "Robert"). Thomas is the pastor of the local congregation, Robert is the treasurer and petitioner is the secretary. All three were members of the local congregation's Board of Directors. Petitioner was not a minister of the Universal Life Church in 1981.
The local congregation did not maintain a bank account. Any donations were kept in a locked facility in the paster's residence. There were three keys to the congregation's treasury, one of which was available at all times in petitioner's home.
It is unclear how contributions, if any, to the local congregation were used after they were deposited in the congregation's treasury. The congregation's budget for 1981 was not established at trial. A distribution of approximately $10,500 was made to Thomas, designated as a tax-exempt parsonage allowance under section 107; however, he elected to treat this as taxable income.
There is no written arrangement between the local congregation and the ULC, Inc. concerning the disposition of funds on dissolution of the local congregation.
On her Federal income tax return for 1981, petitioner claimed1985 Tax Ct. Memo LEXIS 306">*310 a charitable deduction of $13,588 for contributions purportedly made to the local congregation. In his notice of deficiency, the Commissioner disallowed such deduction in its entirety.
OPINION
Under section 170, a taxpayer is allowed a deduction for contributions to charitable organizations subject to certain limitations. In order to qualify for a deduction under section 170(c), petitioner must show (1) that she in fact made contributions; (2) that those 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 private individual.
Deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to the claimed deduction.
The testimony of petitioner, together with the testimony of her husband, Thomas J. Taylor, and that of her stepson, Robert J. Taylor, is replete with contradictions as to the timing of her contributions and the manner in which they were made and is therefore not believable. First, petitioner has not shown that she actually contributed any money to the local congregation. She testified that in 1981 she donated $14,110 in cash to the local congregation. Her reason for using cash for contributions was that it was "convenient." she further testified that she kept only enough money in the bank to pay her bills, and preferred to keep her money in her home. Petitioner stated that she had "salted away" a large amount of money over the years and that it was this money she contributed to the local congregation. However, the evidence established that petitioner maintained a checking account in 1981 and that she frequently used checks to pay for bills and1985 Tax Ct. Memo LEXIS 306">*312 purchases under $50. Of a total of 172 checks written in 1981, 143 were written for amounts less than $50. Respondent argued in his brief that this habit is inconsistent with petitioner's testimony of large cash contributions. We agree. In her brief, petitioner argues that the record in this case indicates "a pattern of cash withdrawals, by automatic teller or bank counter check, for amounts in most cases identical to the amount donated. Further, the withdrawals occurred on the very day or the day before the donations were made." This is, of course, totally inconsistent with her earlier testimony concerning her substantial cash hoard. Thus, petitioner's testimony, her arguments, and the documentary evidence in this case are inconsistent as to the source of the income petitioner allegedly used to make contributions.
In addition, both Robert and Thomas testified that services were usually held on Sunday and contributions were received on that day.According to the testimony, when a contribution was made, petitioner recorded the date and amount in a log under the donee's name. The contribution was then received by the treasurer and placed in the congregation's treasury. The log1985 Tax Ct. Memo LEXIS 306">*313 was totalled and verified by the pastor and the treasurer at the end of each month. None of the dates written on the ledger sheet which purportedly enumerates petitioner's contributions, however, falls on a Sunday in 1981.
This Court is not bound to accept testimony at face value, even if uncontroverted, if it is improbable, unreasonable, or questionable.
Further, in order for a1985 Tax Ct. Memo LEXIS 306">*314 contribution to be deductible under section 170(c), it must be an unconditional gift. The donor must surrender dominion and control over the subject matter of the contribution.
Secondly, petitioner has failed to establish that contributions were made to a qualified tax-exempt organization. She correctly asserts that ULC, Inc. was a tax-exempt organization in 1981. 4 She claims that her local congregation was a tax-exempt organization because it was part of ULC, Inc. However, this Court has repeatedly held that ULC, Inc.'s specific exemption is not a group exemption.1985 Tax Ct. Memo LEXIS 306">*315
In order for a church to receive tax deductible contributions, it must be organized and operated exclusively for religious purposes. Section 170(c)(2)(B). If an organization fails to meet either the organizational or the operational test, it is not exempt.
To satisfy the organizational test, the congregation's assets must be dedicated to an exempt purpose on liquidation.
The operational test requires that an organization engage primarily in activities which further its exempt purpose.
Finally, petitioner has failed to show that no part of the net earnings of the local congregation inured in whole or in part to any private individual. The fact that petitioner, Thomas, and Robert retained control over the church treasury, together with the inference that the congregation's funds were not used to further its exempt purpose, suggests that the local congregation was merely a means of channeling funds for nondeductible household expenses from petitioner to Thomas through the use of a parsonage allowance. This implication precludes a finding that no part of the congregation's net earnings inured to the benefit of any individual.
Petitioner has failed to prove that she actually made the claimed donations, that she relinquished dominion and control over1985 Tax Ct. Memo LEXIS 306">*318 the gifts involved, that the purported contributions were made to a qualified tax exempt organization, and that no part of the congregation's net earnings inured to the benefit of any individual. Accordingly, petitioner is not entitled to a deduction under section 170.
Respondent has determined that petitioner is 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. Petitioner bears the burden of proof on this issue.
Finally, we must consider whether petitioner is liable for damages pursuant to section 6673. Section 6673 provides that the Court may award damages to the United States of up to $5,000 whenever it appears that the proceedings have been instituted1985 Tax Ct. Memo LEXIS 306">*320 or maintained primarily for delay or that taxpayer's position is frivolous or groundless. The instant case falls squarely within this statute. Many cases based on substantially similar facts have been unsuccessfully litigated before this Court. See, e.g.,
1985 Tax Ct. Memo LEXIS 306">*321
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as amended and in effect during the year here in issue. ↩
2. Section 6653(a)(2), effective for taxes the last date prescribed for payment of which is after December 31, 1981, provides:
There shall be added to the tax (in addition to the amount determined under paragraph (1)) an amount equal to 50 percent of the interest payable under section 6601--
(A) with respect to the portion of the underpayment described in paragraph (1) which is attributable to the negligence or intentional disregard referred to in paragraph (1), and
(B) for the period beginning on the last date prescribed by law payment of such underpayment (determined without regard to any extension) and ending on the date of the assessment of the tax (or, if earlier, the date of the payment of the tax).
Because neither assessment nor payment of the tax has occurred in this case, the period described in section 6653(a)(2)(B) has not yet closed, the therefore, the amount of the addition to tax under section 6653(a)(2) cannot be determined at this time.↩
3. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
4. On September 4, 1984, the Internal Revenue Service revoked its prior determination that the Universal Life Church, Inc. was a qualified organization under section 170(c)(2).
Announcement 84-90 ,36 I.R.B. 32">1984-36 I.R.B. 32↩ .5. In her brief, petitioner argues that the imposition of damages under section 6673 is unconstitutional because it has a chilling effect on her
First Amendment right to petition the government for a redress of grievances. We noted in , 899↩ (1977), however, that "[a]ny citizen may resort to the courts whenever he or she in good faith and with a colorable claim desires to challenge the Commissioner's determination; but that does not mean that a citizen may resort to the courts merely to vent his or her anger and attempt symbolically to throw at the system." Because we find that petitioner's position in the instant case is frivolous, we do not believe she acted in good faith when she challenged respondent's determination. Therefore, we find her argument unpersuasive.Hatfield v. Commissioner, 68 T.C. 895">68 T.C. 895