Urbauer v. Commissioner

• Decision Date: 24 March 1992
• Docket Number: Docket No. 11173-90.
• Citation: 63 T.C.M. 2492
• Parties: Charles F. and Kim K. Urbauer v. Commissioner.
• Court: U.S. Tax Court

63 T.C.M. 2492

T.C. Memo. 1992-170

Charles F. and Kim K. Urbauer v. Commissioner.

Docket No. 11173-90.

United States Tax Court.

Filed March 24, 1992.

Charles F. Urbauer, pro se.

Dennis G. Driscoll, for the respondent.

Memorandum Findings of Fact and Opinion

BEGHE, Judge:

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

                Additions to Tax
                                                                   -----------------------------
                                                                        Sec.                       Sec
                Year                                  Deficiency   6653(a)(1)(A)   6653(a)(1)(B)   6661
                1985 ..............................    $15,871         ----             ----       $758
                                                                                      50% of the
                1986 ..............................    $ 2,636         $564         interest due   ----
                                                                                     on $2,636
                

                                                                                     50% of the
                1987 ..............................    $ 1,388         $363          interest
                                                                                        due        ----
                                                                                     on $1,388
                

All section references are to the Internal Revenue Code as in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. All references to petitioner or Mr. Urbauer are to Charles F. Urbauer, and all references to Mrs. Urbauer are to Kim K. Urbauer.

Petitioners contend that the primary issue before this Court is the validity of a lien respondent obtained, by means of a 1990 jeopardy assessment, on the proceeds of sale of petitioners' house. They go on to argue that in securing this lien respondent arbitrarily and without due process added additions to tax and interest to deficiencies to petitioners' Federal income tax liabilities for the taxable years 1980 through 1984. However, as we told petitioners at the trial, we do not have jurisdiction over any issues concerning the validity of this lien or the circumstances in which it was obtained.¹

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

(1) Whether petitioners are entitled to certain deductions under sections 162(a) and 274 in connection with "promotional" expenses they incurred at the Detroit Golf Club for each of the taxable years at issue;

(2) whether petitioners are entitled to a charitable contribution deduction under section 170 in excess of the amount allowed by respondent for the taxable year 1986;

(3) whether certain amounts spent by petitioners in connection with treatment of one of their sons for behavioral and drug problems are deductible in 1987 as medical expenses under section 213;

(4) whether petitioners are liable for additions to tax for a substantial understatement of income tax under section 6661 for the taxable year 1985; and

(5) whether petitioners are liable for additions to tax for negligence or intentional disregard of the rules under section 6653(a) for the taxable years 1986 and 1987.

Findings of Fact

Some of the facts have been stipulated and are incorporated herein by this reference.

At the time the petition was filed, Mr. Urbauer resided in Keego Harbor, Michigan, and Mrs. Urbauer resided in Bloomfield Hills, Michigan. Mr. Urbauer resided in Troy, Michigan, and Mrs. Urbauer resided Royal Oak, Michigan at the time of trial.

Petitioners were married and filed joint Federal income tax returns for the years 1985, 1986, and 1987, but they were divorced at the time of trial. Kristine, John, and Eric are the children of this marriage.

During the taxable years in issue, as in prior years, Mr. Urbauer was self-employed as a financial and investment consultant, and his primary business was selling interests in limited partnerships and private offerings as investments. His efforts to sell these investment products became increasingly difficult with the intimations of, and then, passage of the 1986 Tax Reform Act.²

The chief marketing tool used by Mr. Urbauer to sell his products was petitioners' proficiency as better-than-average golfers.³ Petitioners were members of the Detroit Golf Club (the Club), a private country club, which they joined primarily to meet potential business clients and to reduce Mr. Urbauer's business advertising costs. Petitioner believed that the members of the Club were well-off financially, and he viewed each of them as a potential client.

Promotional Expenses

Petitioners frequently participated in golf tournaments and bowling leagues sponsored by the Club. During these events, petitioners discussed with the other participants Mr. Urbauer's business and the various investment opportunities he could offer them. Mr. Urbauer typically had more substantive business discussions with these individuals over lunch or dinner immediately after the golf or bowling match. Through these events and the discussions that followed, Mr. Urbauer formed new business relationships and strengthened existing ones.

In addition to membership dues, the Club charged petitioners an entry fee to participate in Club sponsored golf tournaments and bowling leagues. Petitioners also incurred out-of-pocket expenditures, such as caddie fees and meals, because of their participation in these tournaments and leagues. Petitioners charged these fees and expenditures to their Club account. Petitioners, and other Club members, were assessed periodic fees for golf club storage and "hole-in-one" awards.⁴ Petitioners were charged an annual fee for the Club magazine, a publication in which Mr. Urbauer advertised his business. These fees were charged to petitioners' Club account, and assessed regardless of how often or how much petitioners used the Club's facilities.

Petitioners received a member's statement from the Club at the end of each month, showing all fees and charges to their account for the preceding month. Mr. Urbauer marked the charges listed on the member's statement as either personal or business related. Petitioner denoted a personal charge on the member's statement by placing a circle or square around the charge and a "P" next to the charge. For the remaining charges, petitioner either recorded the specific names of prospective clients entertained, or labeled them "promotion" or "prom". The charges Mr. Urbauer labeled as "promotion" or "prom" were for golf tournaments, bowling leagues, golf club storage fees, "hole-in-one" awards, the Club magazine, and other miscellaneous debits.

On their Federal income tax returns for 1985, 1986, and 1987, petitioners claimed business expense deductions of 84 percent, 93 percent, and 93 percent, respectively, of their Club membership dues. These deductions resulted from petitioners' computation of their time spent at the Club for business purposes, including their participation in Club sponsored golf tournaments and bowling leagues. After disallowing these claimed deductions, respondent conceded them prior to trial.

Petitioners also claimed a business expense deduction for those amounts they labeled as "promotion" or "prom". Their deduction of these "promotional" expenses has been disallowed in full by respondent.

Charitable Contributions

Petitioners claimed charitable contribution deductions of $14,011 on their 1986 Federal income tax return. Respondent disallowed deductions for certain cash contributions petitioners made to local secondary schools. Respondent also determined that the fair market value of certain tangible property donated by petitioners was less than the value petitioners claimed on their 1986 Federal income tax return.

In 1986, petitioners' daughter, Kristine, was a member of her high school musical group known as the Mercyaires. On February 21, 1986, petitioners paid $17.50 for five tickets to a Mercyaires benefit concert. Petitioners received and kept the tickets, although they did not attend the concert. Petitioners paid $60 on May 25, 1986, for tickets to the Mercyaires yearend spaghetti banquet. Petitioners and their children did attend this event that was held in the school cafeteria, and catered by the Mercyaires and their parents.

Mrs. Urbauer served as chairperson of the University of Detroit High School (Detroit High School) auction during 1986. The Detroit High School auction is a 2-day event that includes a Friday preview of the items to be auctioned, a Saturday auction, and a silent auction held on both days.

On Friday, October 24, 1986, Mrs. Urbauer, as auction chairperson, cashed two of her personal checks at the Detroit High School. Each check was in the amount of $10, and the proceeds of each check were spent by the Detroit High School auction committee on retail purchases of several items to be auctioned.

As auction chairperson, Mrs. Urbauer made opening bids on items included in the silent auction. After the Friday preview, Mrs. Urbauer gave $105 to Detroit High School, an amount equal to the total value of her opening bids on silent auction items for which no other bids were received. Petitioners did not take possession of these items; instead they intentionally left them with the Detroit High School auction committee for inclusion in the silent auction held on Saturday.

Petitioners also donated $120 to Detroit High School to be used as airfare in a vacation package that was auctioned on Saturday, October 25, 1986. Mr. Urbauer made bids on auction items, and wrote a check in the amount of $430 to the Detroit High School during the auction.

On December 9, 1986, Mrs. Urbauer paid $50 to Detroit High School for auction items that had not been claimed. In return for this payment, petitioners took possession of these unclaimed auction items.

Petitioners wrote a check, as a result of a neighbor's fundraising solicitation, in the amount of $47.24 to Cranbrook Middle School on ...