Parker v. Comm'r of Internal Revenue
| Decision Date | 02 April 1986 |
| Docket Number | Docket No. 15374-81. |
| Citation | 86 T.C. 547,86 T.C. No. 35 |
| Parties | RICHARD E. PARKER and JANA J. PARKER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners paid $7,500 to Einar Erickson, a geologist, and deducted that payment as ‘exploration expense‘ under section 617. Erickson caused certain unpatented lode mining claims to be recorded on behalf of petitioners. A year later, petitioners donated one of the claims to charity, claiming a contribution deduction of $125,000. HELD: (1) Petitioners failed to prove that the payment made to Erickson was for deductible exploration expenses. (2) Petitioners are not entitled to a charitable contribution deduction for donation of the mining claim. (3) Petitioners are liable for additions to tax under section 6653(a) and additional interest under section 6621(d). Sidney J. Machtinger, John S. Pennish, Thomas J. Ellsworth, and Charles N. Shephard, for the petitioners.
Fera Wagner and Gilbert Gembacz, for the respondent.
Respondent determined deficiencies in petitioners' Federal income taxes as follows:
+--------------------------------+
¦ ¦ ¦Addition to tax ¦
+----+----------+----------------¦
¦Year¦Deficiency¦sec. 6653(a)1 ¦
+----+----------+----------------¦
¦1977¦$2,925 ¦0 ¦
+----+----------+----------------¦
¦1978¦18,316 ¦$916 ¦
+----+----------+----------------¦
¦1979¦24,458 ¦1,473 ¦
+--------------------------------+
The deficiencies resulted from disallowance of a deduction of $7,500, paid to Einar Erickson in 1977, and disallowance of a claimed charitable contribution deduction of $125,000 in 1978, carried over in part to 1979. By Amendment to the Answer, respondent seeks additional interest under section 6621(d) for 1978 and 1979 on the ground that the claimed contribution was an valuation overstatement within the meaning of section 6659(c).
Some of the facts have been stipulated, and the stipulation of facts is incorporated herein by this reference. Petitioners were residents of Phoenix, Arizona, at the time they filed their petition herein. They timely filed joint individual income tax returns for the years 1977, 1978, and 1979.
Petitioner Richard Parker (petitioner) and Duane Johnston (Johnston) are brothers-in-law who have been employed for many years by the same employer and who have associated closely in business and social matters. Johnston is a certified public accountant (CPA) but does not practice accounting. Neither petitioner nor Johnston had any experience in mining precious metals.
In 1977, Jim Allen, a CPA for the business operated by petitioner and Johnston, petitioner's return preparer, and a close friend of petitioner's, mentioned Einar Erickson (Erickson) to petitioner and Johnston. Petitioner had prior contact with Erickson years earlier when he attended lectures Erickson presented on the subject of the Dead Sea Scrolls, a subject on which Erickson was an authority. Petitioner and Johnston were advised that the Erickson program required a minimum investment of $15,000.
On or about July 25, 1977, petitioners paid $7,500 to Erickson. On or about August 15, 1977, petitioner received from Erickson a ‘Temporary Receipt‘ and a ‘Consultant Geologist Statement,‘ as follows:
Johnston also sent Erickson $7,500. Petitioners and the Johnstons decided to share the $15,000 required for the investment because neither couple could justify financially investing the full amount.
On September 20, 1977, a Certificate of Location of Lode Mining Claim for Claim No. 79 in the Diamond Silverado project and a Certificate of Location of Lode Mining Claim for Claim No. 82 in the Diamond Silverado project were recorded on behalf of petitioners and on behalf of Johnston and Pamela J. Johnston. The certificates recited that claim maps had been filed with the County Recorder in Nye County, Nevada, although the claims were located in Eureka County, Nevada. A map was filed with the Bureau of Land Management showing the location of Diamond Silverado Claim No. 82 as section 29 of Township 19 North, Range 53 East, of the Mount Diablo Meridian, Nevada. The correct location of the claim is section 30, of Township 19. This error was not discovered by Erickson or petitioners until preparation for trial of the within case. A corrected map was not prepared until about 4 weeks prior to trial and had not been recorded as of the time of trial in September 1985.
During 1977 and 1978, petitioners received periodic reports from Erickson, suggesting that exploration work was being performed in the general area of their claims. On or about December 1, 1978, petitioners received a letter from Erickson stating that claim #S-82‘ had a value of not less than $125,000. Erickson was referring to a one-half interest in Diamond Silverado Claim No. 82 (DS 82).
In December 1978, petitioners conducted their year-end tax planning and discussed with their tax advisors what, if anything, should be done with DS 82. They decided to donate DS 82 to Brigham Young University (the University), the school from which both petitioners and Johnston had graduated. On December 26, 1978, petitioner wrote a letter to the University in which petitioner donated his ‘entire 50% undivided interest‘ in DS 82 to the University. Petitioner's letter incorrectly described the claim as being in section 29 of Township 19. The University had also accepted other claims similar to DS 82, but, as of the time of trial, had not caused any development of DS 82.
On their 1977 tax return, petitioners deducted $7,500 on Schedule C as exploration expense. On their 1978 Federal income tax return, petitioners claimed a charitable contribution deduction in the amount of $14,186 relating to the donation of DS 82 to the University. On their 1979 income tax return, petitioners claimed a charitable contribution deduction in the amount of $41,415, reflecting a carryover of the charitable contribution relating to DS 82....
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