Friday, November 13, 2009
Tax Court Applies Cohan Rule to Allow Deduction for Portion of Unsubstantiated Charitable Contributions
Petitioner deducted $3,175 in charitable contributions on Schedule A, Itemized Deductions, for 2005. Respondent disallowed the entire amount as not being made to a qualifying organization. ...
Petitioner states that he attended an Ethiopian Orthodox Church about once a month in the Washington, D.C., area where most of his family resides and that he also attended an Ethiopian Orthodox Church in Boston when his schedule permitted. Petitioner claims he donated clothes to families in need in the Boston area and that he put about $100 cash in the church’s box each time he attended a church in Washington or Boston. Petitioner acknowledges he did not ask for receipts, but he has offered to provide respondent with the telephone number and contact information for the church in Washington, D.C.
Taxpayers may generally deduct a charitable contribution only if they substantiate the deduction in a manner verifiable according to “regulations prescribed by the Secretary.” Sec. 170(a)(1). ...
The Court has not decided definitively whether Cohan is available to estimate charitable contributions. See Kendrix v. Commissioner, T.C. Memo. 2006-9 (finding that the Court has not yet squarely addressed the inherent conflict between section 170(a)(1) and the application of Cohan to unverified or inadequately substantiated charitable contributions). However, precedents exist to allow a Cohan estimate for charitable contributions, especially where we find the taxpayer was candid, forthright, and credible. Stockwell v. Commissioner, T.C. Memo. 2007-149 (stating unconditionally that “We may estimate cash charitable contributions under the Cohan rule”); Hooks v. Commissioner, T.C. Memo. 1993-437; Wren v. Commissioner, T.C. Memo. 1984-456.
Petitioner provided no substantiation of his charitable contributions. However, respondent’s blanket disallowance goes too far. Petitioner is an industrious individual working two jobs while attending school. His religious commitment appears genuine. In summary for charitable contributions, using our best judgment on the entire record before us, and under Cohan bearing heavily against petitioner’s own inexactitude, we find it credible that at least once a month throughout 2005 petitioner attended and made a cash contribution of at least $25 to a qualified Ethiopian Orthodox Church in Washington, D.C., or in Boston. Accordingly, petitioner is entitled to an itemized deduction of $300 for charitable contributions in 2005.