Tax Court Upholds IRS’ Collections Action of Tennessee Man’s Debt

The U.S. Tax Court in Oliveri v. Comm’r, T.C. Memo 2019-57, found that the IRS didn’t abuse its discretion by pursuing collection of a Tennessee man’s tax debt after he failed to pay subsequent tax bills timely.

Issue

Whether or to What Extent Petitioner May Deduct Expenses He Incurred in 2012 Which He Contends Were Related to Evangelization.

Whether Petitioner is Liable for Accuracy-related Penalties.

Facts

Petitioner graduated from the U.S. Naval Academy in 1959 and served in the U.S. Air Force for more than 26 years.

He became very active in the Catholic Church after he retired from the U.S. Air Force in 1986.

Since 1987 petitioner has dedicated his life to being an evangelist.

In 1987 petitioner cofounded the Brothers and Sisters of the Divine Mercy (BSDM). BSDM was incorporated in Maryland in 2003.

Petitioner deducted as charitable contributions the unreimbursed expenses which he contends he incurred in connection with evangelism. Petitioner divided¬†these expenses into 13 categories and gave each category a caption (e.g., the caption for the category comprising most of his airplane rental and training expenses is “Evangelization: Christian Outreach”).

Petitioner deducted $15,082 for expenses that he characterized as “Evangelization: Christian Outreach”. These expenses were incurred in connection with petitioner’s rental of private airplanes both for travel purposes and for pilot training undertaken by petitioner to meet licensing and safety requirements.

On July 28, 2012, petitioner rented a plane and flew Monsignor Rossi, Rector at the Basilica of the National Shrine of the Immaculate Conception (Basilica) in Washington, D.C., to New Jersey to officiate at the funeral of the Monsignor’s cousin. Petitioner deducted $1,432 for this trip, but he did not provide a contemporaneous written acknowledgment of this contribution from the Catholic Church or BSDM. On August 20, 2012, petitioner flew Victor Polizzi, a member of his Biblical theology class, to Ocean City for lunch. Petitioner deducted $605 for this trip.

Petitioner deducted $5,228 for expenses that he characterized as “Evangelization: Counseling”. These expenses comprise petitioner’s payments for every restaurant meal he ate in 2012, including meals he ate with members of his extended family, and also the costs of snacks and coffee when he met with several individuals, including BSDM members. Petitioner provided meals and coffee for others while he was providing spiritual counseling and discussing his faith and evangelism.

Petitioner deducted $7,151 for expenses of six trips that he characterized as “Evangelization: Temporary Assignments”. These trips were to Colorado; Florida; Aberdeen, Maryland; New York; Texas; and North Carolina. His expenses include the costs of commercial airline tickets, private airplane rentals, car rentals, lodging, and meals.

Petitioner deducted $7,910 for expenses that he characterized as “Evangelization: Charitable Grants”, which comprise his payments for clothes, groceries, lodging, traveling, and other miscellaneous gifts for other people.

Petitioner paid $1,000 to Marla Benkovich for the cost of her lodging and telephone service during her stay in Maryland. He also paid for her meals and groceries during that trip, gave her a money order for $30, paid $114.75 to Sam’s Club and $169 for contact lenses for her, and paid for a gift for her daughter Marta. Petitioner paid travel expenses for and gave $1,485 in cash to Sister Lila Nunez, a BSDM member from Paraguay, for a trip to Washington, D.C., to attend the celebration of BSDM’s 25th anniversary.

Petitioner gave a $500 gift card from Bass Pro Shops to Tom Eveler, a retired police officer. He paid $700 for sailing school fees for Anne-Marie Kasuda and paid $24 for movie tickets.

Petitioner spent $1,335 for items which he characterized as “Evangelization: Mission Support”. This category includes petitioner’s purchases of home maintenance items for Sister Kathleen Sheldon, a BSDM member. Petitioner did not get a contemporaneous written acknowledgment of these expenses from the Catholic Church or BSDM.

Petitioner deducted $2,587 for the cost of printed material and gifts for persons he evangelized. He characterized these expenses as “Pastoral Ministry: Audio Visual Media”. This included the costs of Christmas ornaments and religious books and videos which he gave to people he evangelized. He did not have the approval of BSDM or the Catholic Church before making these gifts.

Petitioner paid $1,056 for 1,000 copies of a Spanish language religious pamphlet which he gave to Sister Lila Nunez to distribute in Paraguay. He paid $112 for a subscription to a local newspaper, $25 to RBC Ministries,7Link to the text of the note and $6 to a jewelry store to repair his crucifix.

Petitioner deducted an amount for expenses that he characterized as “Pastoral Ministry: Professional Expenses”, which comprise: $297 for an umbrella insurance policy covering petitioner and his then wife from personal liabilities, $1,615 for legal fees incurred in connection with an audit of his personal income tax return, and $284 paid to CT Corp. for serving as BSDM’s registered agent for receipt of legal documents in Maryland.

Petitioner deducted $1,378 for expenses that he characterized as “Pastoral Ministry: Office Expenses”. These expenses include the costs of office supplies such as paper, books, pens, and computer equipment, which were almost all used in petitioner’s home. Petitioner did not report or account for his office expenses to either the Catholic Church or BSDM.

Petitioner deducted $3,567 for expenses that he characterized as “Evangelization: Communications”. This amount comprises the costs of petitioner’s home telephone, a separate line for a fax machine, and a cell phone. Petitioner had no other telephones or telecommunication devices for his personal use during 2012. Petitioner used the three lines for some personal calls and faxes, such as to speak with his doctor, family members, and friends, and to his lawyers regarding the audit of his personal income tax return. Petitioner did not keep a record of his personal use of the telephone lines.

Petitioner deducted $730 for internet and cable television service in his home, which he characterized as “Evangelization: Evangelization Support”.

Petitioner filed his Form 1040 for 2012 on August 16, 2014, which was 10 months after the extended due date. On that return he reported tax liability of $7,074.

On Schedule A, Itemized Deductions, attached to that return, he deducted charitable contributions as follows: $3,240 in cash contributions, $90 in contributions other than cash, and $62,407 on line 18, the line for carryforward contributions from 2011. The parties agree that petitioner did not have a carryover contribution from 2011 and that the amount he reported on Schedule A, line 18, represents the unreimbursed expenses that are at issue here. Petitioner reduced the $62,407 to $44,189 because of the limits on the deduction of charitable contributions under section 170(f).

Law

Section 170(a) permits the deduction of “any charitable contribution” made by a taxpayer for contributions or gifts “to or for the use of” a charitable organization. Sec. 170(c). Amounts paid to a charity for the benefit of a specified individual are generally not deductible as charitable contributions, regardless of the circumstances of the recipient or the intent of the donor.

A contribution is not deductible if the primary purpose is to obtain a personal benefit for the taxpayer. When a claimed charitable contribution deduction arises from an expense that is in part personal and in part charitable, the burden of proof is on the taxpayer to show that the expense is attributable to the charitable use.

Costs of traveling away from home (including transportation, meals, and lodging) are not deductible unless they qualify as expenses deductible, as relevant here, under section 170 and regulations thereunder. Sec. 1.262-1(b)(5), Income Tax Regs. A charitable deduction for unreimbursed travel expenses is denied where the taxpayer derives substantive personal pleasure while on trips.

To be deductible under section 170, a contribution must be “to or for the use of” a charitable organization. In order to meet this requirement, the expense must be subject to coordination, supervision, or oversight by the organization.

A taxpayer must substantiate the amounts of unreimbursed expenses incurred while rendering services to a charity in order for the expenses to be deductible. No deduction is allowed under section 170(a) for a contribution of $250 or more unless the taxpayer substantiates the contribution with a contemporaneous written acknowledgment from the donee organization

Tax Court’s Analysis

Flight expenses are not made “to or for the use of” a charitable organization merely because petitioner discusses religion while conducting the activity. The charitable contribution deduction is disallowed where, as here, there is a substantial personal benefit to the taxpayer.

Flying Monsignor Rossi to New Jersey to officiate at a funeral was a service to the Catholic Church, but the expenses of that trip (as well as the trips with Mr. Polizzi and Mr. Lopez) are not deductible because the cost of each trip exceeded $250 and petitioner did not obtain a contemporaneous written acknowledgment of the services from the Catholic Church or BSDM.

The cost of eating in a restaurant is a personal expense and is not made deductible by evangelizing persons randomly encountered while eating. These expenses were not “to or for the use of” a charitable organization because the activity lacked sufficient coordination with the Catholic Church or BSDM.

Petitioner’s expenses relating to a BSDM member are not deductible because expenses of providing services for individuals selected for personal reasons by the taxpayer are not deductible, and petitioner has provided no authority showing that members of BSDM qualify as recipients of charity. These expenses also are not deductible because the activity was not sufficiently coordinated with the Catholic Church or BSDM to be considered to or for the use of either of those organizations.

Petitioner incurred expenses for books and videos, Christmas ornaments which he donated to others, and religious pamphlets which he gave to another BSDM member. These expenses are not deductible because petitioner’s activities were not sufficiently coordinated with the Catholic Church or BSDM to treat the expenses as “to or for the use of” either of those organizations.

Petitioner did not use his telephone, internet service, and office supplies exclusively for charitable purposes, and he would have paid these expenses whether or not he engaged in evangelism. Thus, those expenses would not be deductible.

Petitioner deducted $1,329 for expenses which he characterized as “Pastoral Ministry: Office Expenses”. Petitioner did not maintain a separate office for BSDM. All of the items purchased in this category were kept in his home and petitioner admitted to some personal use of those items. The IRS has no basis on which to allocate between the personal and charitable use of these items

Accuracy-Related Penalty

Petitioner is not liable for the penalty under section 6662 if the record does not show that it was properly determined by respondent.

In order to meet the burden of production for this penalty, respondent must show that there was written supervisory approval of the initial penalty determination.

The record contains no evidence of the requisite supervisory approval for this penalty. Thus, respondent did not meet the burden of production and petitioner is not liable for the accuracy-related penalty for 2012.

Options for resolving tax debt

Taxpayers that owe outstanding IRS tax debt should apply for one of the collections alternatives:

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