Taxpayer Floats Like a Butterfly With Substantiation - Tax Court Still Stings Like a Bee

Originally Published on forbes.com on October 15th,2011

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I really hate it when the Tax Court is right, but I still think the taxpayer should have won. Tawana L. Bradley really deserved a break, even though she was not technically entitled to one.  The IRS had been looking for about $12,000.  Most of that was conceded one way or the other leaving only $822.27 in charitable contributions arising from unreimbursed volunteer expenses:

During 2006 petitioner conducted volunteer activities as a cheerleading coach for a youth football and cheerleading league that petitioner identified as the Muhammad Ali Youth Football and Cheerleaders League (league). Petitioner contends that she made various unreimbursed charitable contributions regarding the league’s cheerleading activity, including: (1) Paying for a charter bus rental; (2) paying for pizzas, party favors, and other supplies for a team party; and (3) the use of petitioner’s and her ex-husband’s automobiles for travel to and from team practices and games.

Petitioner provided a charter confirmation form from Toby Tours, Inc., a bus rental company. The charter confirmation is dated November 24, 2006, and indicates that the rental price was $660 and that the bus was scheduled for pickup and return on December 10, 2006. The charter confirmation form indicates that the bus was rented on behalf of a cheerleading group and lists petitioner as the contact for the group. The form does not identify the group as the Muhammad Ali Youth Football and Cheerleaders League. Instead, the form identifies the group as the Yellow Jackets Cheerleaders. 3 Petitioner paid for the charter rental with a $660 money order that she purchased with cash. Petitioner did not submit any further documentation in support of her claimed deduction of the charter bus rental fees.

Petitioner provided several receipts that she testified represent unreimbursed expenses she incurred in providing for a cheerleading team party during 2006. The receipts indicate that petitioner made purchases of $30.16 for pizza, $2.07 for stickers, $31.78 for ribbons, $6.36 for office supplies, and $91.90 for party supplies.

Petitioner also claimed a deduction for unreimbursed mileage expenses for her and her ex-husband’s travel to and from team practices and games. Petitioner coached the cheerleading team, and her ex-husband coached the football team. At trial petitioner produced a Mapquest drivingdirections printout that details the miles driven between her home and the practice field for the team’s practices and games. The printout indicates that petitioner and her ex-husband each drove to and from the practice field four times a week for a period of 18 weeks and traveled 1,857.6 miles on account of team practices and games in connection with their volunteer activities during 2006.

If you read a lot of Tax Court summary opinions, the reality TV of the tax system, you will know that Ms. Bradley did an excellent job on documentation for a pro se taxpayer.  It is pretty clear that the judge appreciated that:

We find that petitioner’s documents are legitimate substitutes for canceled checks because they contain all of the pertinent information that would have appeared on a canceled check. . The receipts show the names of the payees, the dates of the payments, and the amounts of the payments. Like petitioner’s records, a canceled check from a volunteer would generally reflect the name of the payee and not the name of thecharitable organization to which the volunteer’s services were rendered.

So she got the pizza and the party supplies.

As to the mapquest printouts:

The documentation petitioner provided is not a canceled check or a receipt. Therefore, in order for the printout to support petitioner’s mileage expense deduction, it must qualify as “other reliable written records” under section 1.170A- 13(a)(1), Income Tax Regs. Section 1.170A-13(a)(2), Income Tax Regs., provides that the reliability of “other reliable written records” is determined on the basis of all of the facts and circumstances of a particular case. On the basis of our consideration of all the facts and circumstances of this case, we find that the evidence petitioner supplied is sufficient to qualify as “other reliable written records”.

So she got the mileage.

The big item, though, was $660 for the bus charter. There was a problem with the evidence that the judge could help with:

The Internal Revenue Service maintains a list of organizations eligible to receive tax-deductible charitable contributions in Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, which is available at http://www.irs.gov/app/pub-78/. Petitioner testified that she volunteered as a cheerleading coach for the Muhammad Ali Youth Football and Cheerleaders League, which is not listed in Publication 78 as an organization that is eligible to receive tax deductible charitable contributions. However, the Muhammad Ali Youth Football and Cheerleaders League is not the group named on the charter bus confirmation that petitioner submitted in support of her claimed deduction. Instead, the charter confirmation form names the Yellow Jackets Cheerleaders as the group. According to Publication 78, the Muhammad Ali Yellowjackets, Inc., is a qualified organization that was formed in Kentucky. Given the similarities of the group names and the location of the groups within the Commonwealth of Kentucky, it appears that petitioner confused the organization’s name while testifying. Given that her testimony was reasonable and that she has provided reliable evidence of the group’s actual name, we find that petitioner’s activities were services to the Muhammad Ali Yellowjackets, Inc.

This name confusion is not at all unusual and it is something charities need to watch out for.  I have sometimes have had difficulty finding information on rather substantial charities as I noted in this post.  The formal legal name might come to be disused over time but still be what is in the the records.  Muhammed Ali Yellowjackets, Inc. is listed on Guidestar, but there is no information about it beyond an address and a founding year of 1999.  Likely it has less than $25,000 of gross receipts or conceivably no receipts at all.  The name confusion is not what killed the deduction. 

However, because petitioner’s contribution was for an amount greater than $250, she is required to substantiate it by producing a written acknowledgment from the donee organization. See sec. 170(f)(8)(A); see also sec. 1.170A-13(f)(10), Income Tax Regs. Petitioner has failed to present any form of written acknowledgment from the donee organization relating to her contribution. As a result, petitioner’s contribution of the $660 charter bus rental fee is not deductible under section 170 as a charitable contribution. See sec. 170(f)(8)(A).

The acknowledgement requirement is absolute.  When I make donations of more than $250 to a small charity that doesn’t have its act totally  together, I always make a point to explain the requirement.  I would not be doing them a favor by being easygoing about it, because it will end up hurting them with other donors.  In the grand scheme of things it is a reasonable requirement.  There is great story, possibly anecdotal, about a guy who had a candy store across the street from a Catholic church.  One Monday morning he stopped the priest who was tasked with carrying the large bag of coins to the bank.   He explained to him that he often ran out of change on Sunday and wouldn’t it be convenient if the ushers just brought the coins to him and he would write a check making both their live easier.  If you can’t figure out the rest of that story, it is not my place in life to corrupt you.  At any rate, it is a reasonable requirement and it probably needs to be absolute, but I’m still sorry that Ms. Bradley lost.  If in addition to paying for that bus, she rode on it monitoring the interactions of the football players and the cheerleaders, she deserves a medal.  No tax benefits for that either though.