Dyke v. Commissioner

Decision Date06 April 1983
Docket NumberDocket No. 2775-79,12265-81.
Citation1983 TC Memo 190,45 TCM (CCH) 1233
PartiesLyle H. Van Dyke and Myrtle E. Van Dyke v. Commissioner.
CourtU.S. Tax Court

Ronald H. Hoevet, 621 S.W. Morrison St., Portland, Ore., for the petitioners. David M. Kirsch, for the respondent.

Memorandum Findings of Fact and Opinion

FEATHERSTON, Judge:

Respondent determined deficiencies in petitioners' Federal income taxes and additions to tax as follows:

                                              Addition to
                                               Tax Sec
                                               6653(a)
                  Year          Deficiency   I.R.C. 1954
                  1975 ........ $ 2,894.79    $  144.74
                  1976 ........  12,050.30       602.52
                  1977 ........  17,582.00     1,018.60
                  1978 ........  33,339.00     1,666.95
                  1979 ........   4,770.00       238.50
                

After numerous concessions by both parties, the following issues remain for decision:

1. Whether petitioners are entitled to a deduction under section 2121 in the amount of $3,000 for a payment made to Educational Scientific Publishers for a "family trust" package;

2. Whether payments made to Joan Gearon in 1979 for accounting services are deductible under section 212(3);

3. Whether petitioners received only the sum of $20,004 in 1979 upon the sale of their airplane;

4. Whether petitioners are entitled to deductions for charitable contributions under section 170(a) for payments made in 1977 and 1978 to the Congregational Church of Human Morality; and

5. Whether petitioners are liable for all the years in question for additions to tax for negligence or intentional disregard of the tax laws within the meaning of section 6653(a).

For simplicity, we shall combine our findings of fact and opinion for each issue.

General Facts

At all times material herein, petitioners were legal residents of Portland, Oregon. For much of 1975 through 1979, petitioners were employed by Rest-A-Phone Corp., in Portland, Oregon; they also received income from "consulting fees" attributable to the John and Lorie Bridston Trust and Educational Foundation of Knowledge, dividends, interest, rental properties, and capital gains. From 1975 through 1977, petitioner Lyle Van Dyke (hereinafter petitioner) received fees from the sale of family trust packages. In 1975, petitioners established the Lyle H. Van Dyke Equity Trust (the trust) with trust materials provided by Educational Scientific Publishers (ESP). They now concede that the trust is ineffective for tax purposes.

1. Payment to ESP

In 1975, petitioners paid $3,000 to ESP for information concerning family trusts. Included in the information purchased was a "study manual" prepared for ESP by P. Marshall Boyls, an attorney, which described the tax benefits allegedly derived from family trusts.

Petitioners argue that the $3,000 payment is deductible under section 212(3)2 as tax planning advice, maintaining that the advice does not have to be correct in order to give rise to a deductible payment. See Collins v. Commissioner Dec. 30,306, 54 T.C. 1656, 1666 (1970).3

For a payment to be deductible under section 212(3), however, it is necessary that the advice sought pertain to tax matters. Petitioners testified that they went to Denver to seek "tax" advice from Mr. Boyls and Paul T. Wright, another attorney, and that such advice "cost" them $3,000. They submitted a copy of Mr. Boyls' "study manual," a 35-page document explaining the alleged legal bases and tax benefits of the "pure equity trust." Petitioner and his attorney in the instant case referred to this manual as "an opinion letter," but the document—bearing the legend "If you throw this in the wastebasket—put the wastebasket in the safe"— indicates that it was part of the trust package. Petitioner did not testify that Boyls or Wright drafted his own trust papers for him, and we are satisfied that they did not.

Petitioners have not borne their burden of proving that respondent erred in denying the deduction under section 212(2) or (3). Rule 142(a); Welch v. Helvering 3 USTC ¶ 1164, 290 U.S. 111 (1933). The one document, referred to above, submitted to us—from which pages are missing—does not convince us that it was the only material provided by ESP or that tax "advice" alone was procured with the $3,000 payment. We note that on petitioners' Form 1040 for 1975, the $3,000 deduction was listed as a miscellaneous deduction for "the Lyle H. Van Dyke Educational Trust (to Protect Assets)", with no mention of tax advice. A stipulation, moreover, indicates that the payment was made to ESP, not to Mr. Boyls or Mr. Wright. Petitioner testified that he sold trust "packages," and we infer that the $3,000 was paid for an entire trust "package," including numerous forms, and instructions for transferring property as well as "tax advice."

Advice pertaining to general trust matters and the rearrangement of property is a nondeductible personal expenditure within the meaning of section 262. Epp v. Commissioner Dec. 39,016, 78 T.C. 801, 805 (1982). In a situation where some tax advice and some other advice and materials are acquired with one lump payment, the most satisfying treatment may be to allocate a portion of the payment to the tax advice. To allow a deduction to an allocable part, however, petitioner must show both "that some part of an expenditure was made for deductible purposes, and * * * that the record contains sufficient evidence for us to make a reasonable allocation * * *. Cohan v. Commissioner 2 USTC ¶ 489, 39 F. 2d 540 (2d Cir. 1930); Merians v. Commissioner Dec. 31,966, 60 T.C. 187 at 189-190 1973." Luman v. Commissioner Dec. 39,500, 79 T.C. 846, 859 (1982). In the present case, we have no evidence as to what else petitioner acquired with his $3,000 payment. This "manual" may have been a major portion of the value received; it may have been mere surplusage. We have no way of telling. An allocation of any portion of the $3,000 to tax advice would be purely speculative, amounting to "unguided largesse." Williams v. United States 57-2 USTC ¶ 9759, 245 F. 2d 559, 560 (5th Cir. 1957); Luman v. Commissioner, supra at 859; Epp v. Commissioner, supra at 807. Petitioner has failed to prove entitlement to any deduction under section 212(3).

2. Payments Made to Joan Gearon

Petitioners paid to Joan Gearon a total of $400 in 1979 for accounting services. These services related to advice in bookkeeping for determining tax liability and the preparation of income tax returns. Respondent contends that this sum, concededly spent for accounting services, is not deductible, being "governed by the same principles" as the $3,000 payment to ESP and that "the essential nature of the payments is personal, therefore nondeductible. Code sec. 262."

We disagree. Joan Gearon was not shown to be connected with the creation of the family trust. Moreover, the payment to ESP was disallowed because, although a portion of it may have involved tax advice, some indeterminate part of the payment related to personal matters such as rearranging title to property, drafting deeds and bills of sale, and setting up the trust, and the latter expenses are nondeductible. Expenses paid or incurred in connection with the determination of any tax, however, are deductible regardless of their personal nature. Section 212(3) and its regulations expressly permit deductions for expenses paid by a taxpayer in connection with the preparation of his personal tax returns. Sec. 1.212-1(1), Income Tax Regs. Petitioners have borne their burden of proof and the deduction is allowed. Rule 142(a).

3. Amount Received Upon Sale of Airplane

During parts of 1978 and 1979, petitioner owned a Cessna C-320 airplane which he used in an airplane charter business. The airplane cost $45,000 when petitioner bought it in April 1978 and in October 1979 its adjusted basis was $39,342. Because of his own physical problems and the physical deterioration of the airplane, petitioner sold the airplane in October 1979 to a company named Delta II, located in Wyoming. From the proceeds of the sale he satisfied the purchase money loan balance of $20,004 owing to First of Fort Worth Bank, Fort Worth, Texas (the bank) by sending the bank five cashier's checks totaling $20,004.

The parties agree that the airplane was sold in 1979 and that any loss resulting from the sale is an ordinary loss. The only controversy concerns the amount petitioner received on the sale. Petitioners state that they received exactly $20,004, the amount owing the bank. Respondent asserts that petitioners have not borne their burden of proving that they received only $20,004 and no more.

As both parties agree, resolution of this issue depends upon petitioner's credibility. We find incredible his statement that he received exactly $20,004. We note that he dealt in cash, apparently made no bank deposit, paid the bank in five cashier's checks, and produced no objective evidence as to the total proceeds. While he obtained from the bank a copy of a letter he wrote accompanying the cashier's checks, he has submitted no such evidence corroborating his testimony as to the sale price of the airplane. We are compelled to conclude that his testimony is insufficient to carry his burden of proof. We recognize that the airplane may have decreased in value to some extent while he owned it. Yet we have no way of knowing how much it deteriorated or whether any such deterioration affected its sale price. In view of the absence of documentation of the sale, any effort on our part to estimate the amount of petitioner's loss, if any, on disposition of the airplane would be conjecture.

4. Charitable Contributions

Petitioners made payments to the Congregational Church of Human Morality in 1977 and 1978 in the amounts of $6,600 and $17,870, respectively. They claim deductions as charitable contributions for these amounts.

In order for a contribution to be deductible under section 170(a),4 the recipient must meet the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT