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On their 1990 return, petitioners claimed a charitable
contribution deduction with respect to the Canal in the amount of
$71,108; they claimed the remainder--$40,642--on their 1992
Federal income tax return as a charitable contribution carryover
from 1990. The Canal was described on the 1990 return as 4.7
acres of land and improvements, appraised at a fair market value
of $111,750. Attached to the 1990 return was the letter from Mr.
Moses estimating a $107,134.50 cost for digging a canal on 4.75
acres of land. In addition, petitioners reported adjusted gross
income of $237,025 for 1990, claimed itemized deductions of
$104,042 (including the charitable contribution deduction with
respect to the Canal of $71,108) and exemptions of $10,250, and
computed taxable income of $122,733. They reported a tax
liability of $32,363 and previous withholdings of $29,676,
resulting in net tax due for 1990 of $2,687.
In the notice of deficiency, respondent determined that the
value of the Canal was $5,950. Included in the notice was the
appraiser’s report relied on by respondent in making the
determination and offered by respondent at trial. In preparation
for trial in this case, petitioners hired a second appraiser, who
valued the Canal at $72,500, and petitioners now concede that the
Canal’s value was no greater than $72,500.
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