Pesky et al v. United States of America

Filing 123

MEMORANDUM ORDER the United States' motion for summary judgment on the Peskys' various claims for reimbursement that do not involve the Conservation Easement is GRANTED with respect to the Schedule C business deductions and various charitab le contributions, and DENIED with respect to reimbursement for contribution of stock to the Pesky Family Foundation, mortgage interest deductions, and miscellaneous itemized expenses. Signed by Judge William B. Shubb. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

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UNITED STATES DISTRICT COURT

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DISTRICT OF IDAHO

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----oo0oo----

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ALAN PESKY and WENDY PESKY,

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NO. CIV. 1:10-186 WBS

Plaintiffs,
MEMORANDUM AND ORDER RE:
MOTION FOR SUMMARY JUDGMENT ON
MISCELLANEOUS DEDUCTIONS

v.
UNITED STATES OF AMERICA,
Defendant.
/

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----oo0oo---Plaintiffs Alan and Wendy Pesky brought suit against

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the United States of America seeking a refund for taxes,

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penalties, and interest assessed against them for the 2003 and

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2004 tax years.

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cross-motions for summary judgment pursuant to Federal Rule of

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Civil Procedure 56.

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Currently before the court are the parties’

(Docket Nos. 105, 106.)

The parties’ dispute can generally be divided into two

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general topics: (1) deduction of the Conservation Easement, and

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(2) deduction of various other expenses.

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considering the parties’ briefs, the court finds that these two
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After carefully

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issues presented are best addressed in separate orders.

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order addresses the parties’ claims regarding the Peskys’ various

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claims for reimbursement based on disallowance of deductions in

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the 2002, 2003 and 2004 tax years, excluding the deductions and

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penalties related to the Conservation Easement.

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I.

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This

Factual and Procedural Background
In short, plaintiffs seek reimbursement for taxes paid

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to the IRS after the IRS disallowed certain deductions claimed by

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the Peskys in the 2002, 2003 and 2004 tax years.

(First Am.

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Compl. (“FAC”) (Docket No. 72).)

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part, reimbursements based upon total or partial disallowance of

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the following deductions: $202,278.00 in stock donated to the

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Pesky Family Foundation, (id. ¶ 32); $41,308.00, $41,514.00, and

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$86,155.00 in mortgage interest deductions, (id. ¶¶ 30-31, 44-45,

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68-69); $47,892.00 and $112,963.00 in miscellaneous itemized

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deductions after the two percent adjusted gross income

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limitation, including investment interest, foreign tax credits,

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and deductions passed through to the Peskys from partnerships in

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which they held an interest, (id. ¶¶ 34-35, 49-60).

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Peskys originally filed claims for reimbursement based on

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disallowance of Schedule C business deductions and various other

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charitable contributions, (Compl. ¶¶ 39-42, 55-58 (Docket No.

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1)), they do not pursue those claims in the FAC.

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States has filed a counterclaim for fraud penalties under 26

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U.S.C. § 6663 based upon Alan Pesky’s allegedly fraudulent

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Schedule C business deductions.

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(Docket No. 90).)

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Plaintiffs seek, in relevant

While the

The United

(Answer to FAC ¶¶ 157-175

The United States moves for summary judgment in its
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favor on the Peskys’ claims and related accuracy and filing

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penalties.

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(Docket No. 106).)

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summary judgment on its counterclaim for Schedule C fraud

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penalties.

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judgment on any of these issues.

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(“Peskys MSJ”) at 2 (Docket No. 106-1).)

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II.

(See generally U.S. Mot. for Summ. J. (“U.S. MSJ”)
The United States does not, however, seek

(See id. at 2.)

The Peskys do not seek summary
(See Peskys Mot. for Summ. J.

Discussion

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The court reviews the United States’ motion for summary

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judgment based upon the standards set forth in Anderson v.

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Liberty Lobby, Inc., 477 U.S. 242, 248 (1986), and Celotex Corp.

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v. Catrett, 477 U.S. 317, 322-23 (1986).

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“Deductions are a matter of legislative grace, and

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taxpayers must prove they are entitled to the deductions

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claimed.”

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3794241, at *1 (2011).

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records sufficient to establish the amounts of allowable

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deductions and to enable the Commissioner to determine the

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correct tax liability.”

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A.

Weatherly v. Comm’r, 102 T.C.M. (CCH) 199, 2011 WL
“Taxpayers are required to maintain

Id. (citing 26 U.S.C. § 6001).

Schedule C Business Deductions and Various Charitable

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Deductions

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First, the United States seeks summary judgment in its

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favor on the validity of the Peskys’ Schedule C business

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deductions and various charitable deductions claimed in the 2003

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and 2004 tax years.

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already assessed and collected the amounts owed on these

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deductions.

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recover the assessments, and the Peskys’ pleadings have been

(U.S. MSJ at 18-20.)

The United States has

The Peskys confirm that they no longer seek to

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amended to exclude all reference to these assessments.

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will accordingly grant the United States’ motion for summary

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judgment based on improper substantiation of the Peskys’ Schedule

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C business deductions and various charitable deductions.1

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B.

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The court

Stock Contribution to the Family Foundation
The United States also seeks summary judgment on the

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issue of whether an allegedly charitable contribution of $202,278

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in stock to the Pesky Family Foundation on July 7, 2003 was

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properly substantiated by a contemporaneous written

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acknowledgment.

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(Id. at 17-18.)

“Contributions of cash or property of $250 or more

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require the donor to obtain contemporaneous written

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acknowledgment of the donation from the donee.”

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Comm’r, 105 T.C.M. (CCH) 1464, 2013 WL 948473, at *2 (citing 26

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U.S.C. § 170(f)(8)(A)).

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written acknowledgment must contain a description of any property

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contributed, a statement as to whether any goods or services were

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provided in consideration, and a description and good-faith

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estimate of the value of any goods or services provided in

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consideration.”

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written acknowledgment is contemporaneous if it is obtained by

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the taxpayer on or before the earlier of (1) the date on which

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the taxpayer files a return for the taxable year in which the

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contribution was made, or (2) the due date (including extensions)

Villareale v.

“At a minimum, the contemporaneous

Id. (citing 26 U.S.C. § 170(f)(8)(B)).

“A

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Because neither the United States nor the Peskys seek
summary judgment on the United States’ counterclaim for Schedule
C fraud under 26 U.S.C. § 6663, the court makes no findings as to
whether Alan Pesky fraudulently sought Schedule C business
deductions.
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for filing such return.”

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Id. (citing 26 U.S.C. § 170(f)(8)(C)).

“The contemporaneous written acknowledgment need not

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take any particular form.”

Irby v. Comm’r, 139 T.C. No. 14, 2012

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WL 5273345, at *11 (2012) (internal quotation marks omitted).

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Irby, the court found that a series of documents, including

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Option Agreements, Forms 8283, letters to the taxpayer from the

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organization, settlement statements, and deeds of trust

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collectively constituted a contemporaneous written acknowledgment

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of charitable contributions of conservation easements.

In

Id. at

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*11-12.

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in which the taxpayer received no goods or services in exchange

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for the contribution, the court sees no reason why a comparable

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collection of documents could not similarly show that no goods or

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services were received in exchange for a contribution.2

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While Irby was a bargain-sale contribution and not one

Here, the letter from the Pesky Family Foundation does

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not satisfy the statutory requirements because it was written

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approximately six years after the alleged contribution and is

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therefore not contemporaneous.

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However, in addition to that letter the Peskys also provide

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various financial documents, including the Pesky Family

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Foundation’s general ledger and bank statements, which they

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contend show that the Pesky Family Foundation received the

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contribution and that the Foundation provided nothing to the

(See Yost Decl. Ex. 46.)

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The other case cited by the Peskys in support of their
argument, Foxworth, Inc. v. Comm’r, 98 T.C.M. (CCH) 177, 2009 WL
2877850 (2009), involved the use of financial documents to
establish whether shares of stock were transferred to a
charitable organization. Foxworth, 2009 WL 2877850, at *26-27.
Foxworth does not appear to involve the question of whether those
documents established a statement that the taxpayer did not
receive any goods or services in exchange for the contribution.
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Peskys in return.

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Schwartman Aff. in Opp’n to U.S. MSJ (“Schwartzman Aff.”) Exs.

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12, 13, 14 (Docket Nos. 110-4, 110-5).)

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show the stock contributed by the Peskys as income and no expense

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to the Peskys or their business entities.

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(See Pesky Opp’n at 21-22 (Docket No. 110);

The documents appear to

The United States does not argue that the Peskys were

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not entitled to claim a deduction for the contribution.

Rather,

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the United States seeks summary judgment on the ground that

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plaintiffs did not submit adequate documentation to substantiate

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the deduction.

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expertise in tax matters and the benefit of a bench trial to seek

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clarification of complex financial documents, this court must

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apply the summary judgment standard to a set of documents with

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which it is unfamiliar.

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explanation of the documents at issue, it appears that a genuine

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issue of material fact exists as to whether the documents

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sufficiently establish that the Peskys received no goods or

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benefits in return for the contribution and therefore qualify as

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a contemporaneous written acknowledgment.

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accordingly deny the United States’ motion for summary judgment

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on the Peskys’ claim for reimbursement based on disallowance of

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the deduction for stock contributed to the Pesky Family

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Foundation on July 7, 2003.

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C.

Unlike the Tax Court, with its substantial

Because of the limited briefing and

The court will

Mortgage Interest Deductions and Miscellaneous Expenses
Finally, the United States seeks summary judgment

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whether the Peskys have substantiated their mortgage interest

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deductions, (see FAC ¶¶ 30-31, 44-45), and whether plaintiffs

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have substantiated various other deductions, such as
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miscellaneous itemized expenses, deductible investment expenses,

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and foreign tax credits, (see id. ¶¶ 34, 48-52, 54-56, 59-60).

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(U.S. MSJ at 22-23.)

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the Pesky Family Foundation, the dispute is not over plaintiffs

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were entitled to deduct their mortgage interest and the other

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miscellaneous expenses, but rather whether the plaintiffs

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submitted the right documentation, and in the right form, to

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substantiate the Peskys’ claimed expenses.

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Exs. 17-19, 22, 26).

Again, as with the stock contribution to

(See Schwartzman Aff.

Once again faced with raw financial data

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and little to no explanation of the documents at issue, the court

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cannot speculate as to meaning and importance of these documents.

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The court finds that, due to the short shrift these issues

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received in the parties’ briefing and the difficulty of gleaning

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information from the financial documents provided, genuine issues

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of material fact remain on these issues.

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The court will accordingly deny the United States’

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motion for summary judgment on the Peskys’ claims for

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reimbursement based upon disallowance of mortgage interest

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deductions and miscellaneous itemized deductions.

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Because the Peskys’ overall tax liability is still

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uncertain, the court declines to address accuracy and failure to

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file penalties at this time.

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(defining a “substantial underpayment” for the purposes of the

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twenty percent accuracy penalty as an understatement exceeding

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the greater of $5,000 or ten percent of the tax due); Crocker v.

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Comm’r, 92 T.C. 899, 908 (1989) (explaining that a taxpayer may

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avoid failure to file penalties based upon invalid extensions if

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he “makes a bona fide and reasonable estimate of his tax

See 26 U.S.C. § 6662(d)(1)(A)

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liability based on the information available to him at the time

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of extension”).

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IT IS THEREFORE ORDERED that the United States’ motion

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for summary judgment on the Peskys’ various claims for

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reimbursement that do not involve the Conservation Easement be,

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and the same hereby is, GRANTED with respect to the Schedule C

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business deductions and various charitable contributions, and

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DENIED with respect to reimbursement for contribution of stock to

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the Pesky Family Foundation, mortgage interest deductions, and

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miscellaneous itemized expenses.

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DATED:

July 8, 2013

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