Gina Jaha

United States Tax Court

T.C. Memo. 2025-26

GINA JAHA,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

BOB ANDERSON,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket Nos. 2404-14, 2417-14. Filed March 25, 2025.

__________

Gina Jaha, pro se in Docket No. 2404-14.

Bob Anderson, pro se in Docket No. 2417-14.

Peter H. Clark, Kim-Khanh Thi Nguyen, and Hans Famularo, for

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

ASHFORD, Judge: In these consolidated cases, the Internal

Revenue Service (IRS or respondent) issued separate Notices of

Deficiency to petitioners, Bob Anderson and Gina Jaha, a married

couple, with respect to their federal income tax for the 2005–09 taxable

years (years at issue). For Mr. Anderson, the IRS determined the

Served 03/25/25

2

[*2] following deficiencies and additions to tax under sections 6651(a)(1)

and (2) and 6654: 1

Additions to Tax 2

Year Deficiency

§ 6651(a)(1) § 6651(a)(2) § 6654

2005 $13,956 $3,140 $3,489 $560

2006 12,314 2,771 3,079 583

2007 11,204 2,521 2,801 510

2008 12,564 2,827 3,141 404

2009 7,459 1,678 (2) 179

For Ms. Jaha, the IRS determined the following deficiencies and

additions to tax under sections 6651(a)(1) and (2) and 6654:

Additions to Tax 3

Year Deficiency

§ 6651(a)(1) § 6651(a)(2) § 6654

2005 $4,071 $916 $1,018 $163

2006 3,444 775 861 163

2007 3,003 676 751 137

2008 3,465 780 866 111

2009 1,731 389 4 (3) —

After certain concessions by respondent, 5 the issues remaining for

consideration are whether for the years at issue (1) petitioners properly

elected joint filing status, and if not, whether half of Mr. Anderson’s

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and

Rule references are to the Tax Court Rules of Practice and Procedure. Some monetary

amounts are rounded to the nearest dollar.

2 The Notice of Deficiency issued to Mr. Anderson indicates that the additions

to tax were computed only through a date specified therein, and that the section

6651(a)(2) addition to tax for 2009 would be computed later. The amounts determined

under section 6651(a)(1) and (2) appear to have been transposed because of a clerical

error. See § 6651(a)(1) and (2), (c)(1).

3 The Notice of Deficiency issued to Ms. Jaha treats the computation of the

section 6651(a)(1) and (2) additions to tax in the same manner as the Notice of

Deficiency issued to Mr. Anderson, and the amounts of those additions to tax likewise

appear to have been transposed. See supra note 2.

4 Because of an apparent typographical error, the Notice of Deficiency lists the

amount of this addition to tax as “389/48” instead of “389.48.”

5 On brief respondent concedes that Mr. Anderson is entitled to certain

business expense deductions for the years at issue, see infra p. 13, one dependency

exemption deduction under section 151(a) and (c) for each of the years at issue, see

infra p. 16, and a mortgage interest deduction of $16,988 for 2005, see infra p. 17.

3

[*3] income belongs to Ms. Jaha under California community property

law; (2) Mr. Anderson had unreported gross receipts from his multilevel

marketing business; (3) Mr. Anderson is entitled to any deductions

beyond those respondent has conceded; (4) Mr. Anderson is liable for

self-employment tax; and (5) petitioners are liable for the additions to

tax. 6

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The

Stipulation of Facts and the attached Exhibits are incorporated herein

by this reference.

I. Petitioners and Their Connections to California and Oregon

Petitioners, who were married at all relevant times, resided in

California when they timely filed their Petitions.

During the years at issue petitioners resided in an apartment in

California that Mr. Anderson began renting in 2004. Mr. Anderson used

one room of the apartment as an office. Ms. Jaha and petitioners’ son

(who was born in 2004) lived in the apartment during at least parts of

each year from 2004–09, and they began living at the apartment full

time in 2009 or 2010.

Before 2005 petitioners lived in Oregon, where Mr. Anderson

owned a house. Mr. Anderson sold that house in 2005. Mr. Anderson

regularly traveled to Oregon to care for his ailing father, and he stayed

at his father’s house when he did so. Mr. Anderson also held an Oregon

driver’s license, which indicated that it was issued to him at his father’s

address in 2007 and was valid until 2015.

II. Mr. Anderson’s Multilevel Marketing Business

During the years at issue Mr. Anderson worked as an

independent contractor for Mannatech, Inc. (Mannatech), a multilevel

marketing firm that sold food supplements. Mr. Anderson’s work

involved marketing Mannatech’s products to consumers, as well as

recruiting and training additional “downline distributors” to do the

same. He earned commissions based on his own sales and the sales

made by his distributor recruits (and their recruits, and so on), such that

6 Ms. Jaha did not appear at trial, but she will be bound by our resolution of

the issues in these cases. See Rule 149(a).

4

[*4] he regularly earned commissions from groups of distributors

stretching to as many as 30–50 levels. Mr. Anderson’s largest groups of

distributors were in California and Oregon, and he traveled regularly

between those states to participate in meetings that were helpful in

recruiting additional distributors.

Instead of receiving payments directly from Mannatech, Mr.

Anderson arranged to have his commissions for 2005 and 2006 paid to a

trust on his behalf. He understood that other Mannatech distributors

had made similar arrangements in an effort to shield their earnings

from potential lawsuits and to reduce their federal income tax liabilities.

In May 2007 Mr. Anderson directed Mannatech to transfer his “position”

to a newly formed Oregon corporation, Redefining Wellness, Inc.

(Redefining Wellness), of which he was the sole shareholder. Mannatech

thereafter paid Mr. Anderson’s commissions to Redefining Wellness

instead of the trust.

III. The IRS’s Examination

Petitioners did not timely file Forms 1040, U.S. Individual Income

Tax Return, for the years at issue, 7 and the IRS eventually assigned a

revenue agent (RA) to examine petitioners’ income tax liabilities for

those years. Petitioners retained Anthony Aulisio, Jr., a certified public

accountant, to represent them in the examination.

The RA scheduled an initial meeting with petitioners and Mr.

Aulisio. At that meeting, Mr. Anderson told the RA that he had lost

most of his tax records as a result of moving three times in the prior six

years. The RA memorialized Mr. Anderson’s explanation for the loss of

his records in written notes composed the day after the meeting, which

he prepared in the ordinary course of business as part of the

examination file.

Following the meeting, Mr. Aulisio prepared Forms 1040 for 2005

and 2006, which petitioners signed. The returns listed the address of

petitioners’ California apartment and indicated that they wished to elect

married filing jointly as their filing status. The returns also included

Schedules C, Profit or Loss From Business, reporting gross receipts for

a business activity, identified as “Marketing” under the business name

“Man[n]atech,” of $86,883 and $78,011 for 2005 and 2006, respectively.

Mr. Aulisio faxed copies of the returns to the RA, who reviewed them

7 Nor did petitioners file a Form 1040 for the preceding taxable year, 2004.

5

[*5] and requested evidence substantiating expenses reported on the

Schedules C. The RA, however, never received such evidence. Nor did

the RA receive petitioners’ original 2005 and 2006 returns, and

consequently he never forwarded those returns for filing.

Instead, the RA prepared substitutes for returns (SFRs) for the

years at issue for each petitioner, 8 see § 6020(b), and then issued a Notice

of Deficiency to each of them. The Notices of Deficiency reflect the IRS’s

determinations that (1) each petitioner’s filing status for the years at

issue is married, filing separately; (2) half of Mr. Anderson’s gross

income for the years at issue is allocable to Ms. Jaha as community

property under California law; (3) Mr. Anderson had Schedule C gross

receipts of $75,588, $67,870, $62,767, $69,543, and $47,132 for 2005–09,

respectively; (4) Mr. Anderson is subject to self-employment tax under

section 1401 for the years at issue; and (5) petitioners are liable for

additions to tax under sections 6651(a)(1) and (2) and 6654. To

determine the amounts of Mr. Anderson’s gross receipts, the RA relied

on Forms 1099–MISC, Miscellaneous Income, that Mannatech issued to

the trust and Redefining Wellness, Mannatech’s internal payment

records, and discussions with Mr. Aulisio. The RA received the Forms

1099–MISC and Mannatech’s internal payment records in response to a

summons, and thereafter he incorporated those documents in the

examination file.

After the IRS issued the Notices of Deficiency, Mr. Aulisio also

prepared Forms 1040 for 2007–09, which petitioners signed. Mr. Aulisio

submitted the 2007–09 returns to an employee in the IRS’s Office of

Appeals, but they were never forwarded for filing. The returns listed

the address of petitioners’ California apartment and indicated that they

wished to elect married filing jointly as their filing status. They also

included Schedules C reporting gross receipts for a business activity,

identified as “Marketing” under the business name “Man[n]atech,” of

$62,767, $69,543, and $47,132 for 2007–09, respectively. The copies of

the returns in the record also include documents relating to California

state income tax returns.

8 The record includes copies of all the SFRs except the one prepared for Ms.

Jaha for 2008.

6

[*6] OPINION

I. Burden of Proof

As a preliminary matter, we address who has the burden of proof

with respect to the various issues in these cases.

In general, the Commissioner’s determinations set forth in a

Notice of Deficiency are presumed correct, and the taxpayer bears the

burden of proving otherwise. See Rule 142(a)(1); Welch v. Helvering, 290

U.S. 111, 115 (1933). However, in unreported income cases such as

these, the Commissioner must establish “some evidentiary foundation”

connecting the taxpayer with the income-producing activity or

demonstrating that the taxpayer actually received unreported income.

See Weimerskirch v. Commissioner, 596 F.2d 358, 361–62 (9th Cir.

1979), rev’g 67 T.C. 672 (1977); Walquist v. Commissioner, 152 T.C. 61,

67–68 (2019); see also Edwards v. Commissioner, 680 F.2d 1268, 1270–

71 (9th Cir. 1982) (per curiam) (holding that the Commissioner’s

assertion of a deficiency is presumptively correct once some substantive

evidence is introduced demonstrating that the taxpayer received

unreported income). The requisite evidentiary foundation is minimal

and need not include direct evidence. See Banister v. Commissioner,

T.C. Memo. 2008-201, slip op. at 4, aff’d, 418 F. App’x 637 (9th Cir. 2011).

If the Commissioner introduces some evidence that the taxpayer

received unreported income, the burden shifts to the taxpayer, who must

establish by a preponderance of the evidence that the determination was

arbitrary or erroneous. See Hardy v. Commissioner, 181 F.3d 1002, 1004

(9th Cir. 1999), aff’g T.C. Memo. 1997-97. The record clearly shows that

Mr. Anderson had an active and income-producing multilevel marketing

business, and thus we are satisfied that respondent has met his initial

evidentiary burden with respect to the gross receipts attributable to that

business.

Tax deductions are a matter of legislative grace, and the taxpayer

bears the burden of proving entitlement to any deduction claimed.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Segel v.

Commissioner, 89 T.C. 816, 842 (1987). As relevant here, this burden

requires the taxpayer to demonstrate that the claimed deductions are

allowable pursuant to some statutory provision and to substantiate the

expenses giving rise to the claimed deductions by maintaining and

producing adequate records that enable the Commissioner to determine

the taxpayer’s correct liability. § 6001; Higbee v. Commissioner, 116 T.C.

438, 440 (2001).

7

[*7] Petitioners contend that the burden of proof should shift to

respondent under section 7491(a) or (b) with respect to certain factual

issues underlying the IRS’s determinations that Mr. Anderson had

unreported income for the years at issue that should be treated as

petitioners’ community property under California law. The record does

not establish, however, that the applicable conditions for shifting the

burden of proof as to those factual issues have been satisfied. See, e.g.,

Rogers v. Commissioner, T.C. Memo. 2014-141, at *16–17, aff’d, No. 15-

3678, 2016 U.S. App. LEXIS 23759 (7th Cir. Nov. 3, 2016).

The Commissioner bears the burden of production with respect to

the additions to tax under sections 6651 and 6654, see § 7491(c), but the

taxpayer bears the burden of proving that the Commissioner’s

determinations with respect to the additions to tax should not be

sustained, see Wheeler v. Commissioner, 127 T.C. 200, 207–08 (2006),

aff’d, 521 F.3d 1289 (10th Cir. 2008).

II. Petitioners’ Filing Status

Turning to the merits of these cases, we first consider the IRS’s

determinations that each petitioner’s correct filing status for the years

at issue is married, filing separately. Although petitioners challenged

those determinations in their Petitions by alleging that their correct

filing status is married, filing jointly, they have withdrawn their

challenges on brief and now deny that they properly elected joint filing

status. Respondent, however, purports to concede on brief that

petitioners are entitled to joint filing status.

Married taxpayers generally may elect to file a joint return for a

taxable year although their right to do so may be limited after either

spouse has filed a separate return. See § 6013(a) and (b). After the filing

of a separate return, a joint filing status election is generally prohibited

if either spouse has timely filed a petition for redetermination of a

deficiency. § 6013(b)(2)(B). Nevertheless, where, as here, the return

electing separate filing status is an SFR filed by the IRS, the taxpayer

may still elect joint filing status by filing a joint return with his or her

spouse before the case is submitted for decision. See Millsap v.

Commissioner, 91 T.C. 926, 937 (1988); see also Scherping v.

Commissioner, T.C. Memo. 1989-678, 1989 Tax Ct. Memo LEXIS 678,

at *25 (holding that taxpayers “did not properly elect joint filing status

for the years at issue because they failed to elect by the only permissible

method, i.e., filing joint income tax returns” before submission of the

case).

8

[*8] A return is deemed filed only if it has been submitted in the

manner specified by regulation, or if it is at least eventually received by

the appropriate person or office. Seaview Trading, LLC v.

Commissioner, 62 F.4th 1131, 1134–35 (9th Cir. 2023), aff’g en banc T.C.

Memo. 2019-122. Individual income tax returns generally must be filed

with an assigned person in the taxpayer’s local IRS office or with a

designated service center. Treas. Reg. § 1.6091-2(a)(1), (c), (d).

Submitting a return to an IRS employee who has not been assigned to

receive it, such as a revenue agent or respondent’s counsel, is generally

insufficient. See Seaview Trading, LLC v. Commissioner, 62 F.4th at

1134–35.

The record fails to establish that petitioners properly elected joint

filing status. No party contends that petitioners filed their returns for

the years at issue in the manner specified by regulation, that any of the

IRS’s employees forwarded them to the appropriate person or office for

filing, or that the IRS actually filed any of the returns. Accordingly, we

cannot conclude that petitioners properly elected to change their filing

status for the years at issue, and we sustain the IRS’s determination in

the Notices of Deficiency that each petitioner’s correct filing status is

married, filing separately.

III. Community Property

In the absence of joint returns, petitioners contend that Ms. Jaha

had no income for the years at issue because she was not domiciled in

California and, therefore, was not required to treat half of Mr.

Anderson’s income as hers under California community property law.

Married taxpayers who do not file joint returns are generally each

liable for federal income tax on half of their community property income

for a taxable year. See United States v. Mitchell, 403 U.S. 190, 196–97

(1971). Whether a taxpayer’s income constitutes community property is

determined under the law of the jurisdiction where its earner is

domiciled. Owens v. Commissioner, 26 T.C. 77, 88–89 (1956); Kamikido

v. Commissioner, T.C. Memo. 1979-402. The income earner’s domicile,

rather than his or her place of temporary residence, controls. Whitmore

v. Commissioner, 25 T.C. 293, 296–97 (1955); Webb v. Commissioner,

T.C. Memo. 1996-550. Under California law, “[e]xcept as otherwise

provided by statute, all property . . . acquired by a married person

during the marriage while domiciled in [California] is community

property.” Cal. Fam. Code § 760 (West, Westlaw through 2024 Reg.

Sess. ch. 1002). The community property character of Mr. Anderson’s

9

[*9] income thus turns on whether he, not Ms. Jaha, was domiciled in

California during the years at issue.

The place of an individual’s domicile is primarily a question of

fact. Niki v. United States, 484 F.2d 95, 95 (9th Cir. 1973) (per curiam);

Kamikido, T.C. Memo. 1979-402. “Residence in fact, coupled with the

purpose to make the place of residence one’s home, are the essential

elements of domicile.” Texas v. Florida, 306 U.S. 398, 424 (1939).

Although we may consider an individual’s statements of intent with

respect to his or her domicile, such statements are entitled to slight

weight when they conflict with the individual’s actions. See id. at 425.

Factors relevant to an individual’s intent include the locations of his or

her birth, residence, family, employment, voting, property, and

community involvement. See Kamikido, T.C. Memo. 1979-402. We have

also given weight to the address shown on a taxpayer’s income tax

return. See Whitmore, 25 T.C. at 297–98. An individual may not “elect

to make his home in one place in point of interest and attachment and

for the general purposes of life, and in another, where he in fact had no

residence, for the purpose of taxation.” Texas, 306 U.S. at 426.

Mr. Anderson’s statements relating to his residence and intent

were equivocal, and often appeared calculated to avoid revealing the full

extent of his attachment to California during the years at issue. He

testified that he began renting the California apartment in 2004 and

sold his former Oregon home in 2005. He explained that he had been

traveling to California even before 2004, and decided to rent the

apartment, part of which he used as an office, because of the growth of

his business in the state. He also testified that his wife and his son, who

was born in 2004, stayed with him at the apartment.

When asked to specify when he moved to California, Mr.

Anderson said that he “probably” had not “officially” moved there even

by the time of trial, noting that he still traveled to Oregon, maintained

his car registration and driver’s license there, and had an ailing father

there. He also declined to admit that Ms. Jaha resided in California any

earlier than 2009 or 2010, when his son started school, by which time he

admitted that Ms. Jaha was living in California “full time.” But when

asked whether he had previously told the RA, under oath, that he

resided in California during the years at issue, Mr. Anderson admitted

that he “very well may have” and that he was in California “more and

more” during those years, even though he also claimed to have been

“back and forth minimally half the time.” Tellingly, when the Court

gave him the opportunity to state plainly where he claimed to reside,

10

[*10] Mr. Anderson did not answer directly and instead said that he

“intend[ed] fully to move back to Oregon” once he determined whether a

new business venture would succeed.

Although Mr. Anderson’s testimony indicates that he retained

some degree of connection to Oregon and hoped to return there someday,

the other evidence bearing on his residence and intent confirms that

Oregon was no longer his home by 2005. The RA credibly testified that

petitioners told him that they lived in California during the years at

issue and did not own real property in Oregon or elsewhere after 2005.

What little documentary evidence the record contains of Mr. Anderson’s

travel during the years at issue consists of receipts for airline trips

departing from and returning to California, not Oregon. Moreover,

there is no indication that Mr. Anderson maintained a permanent

residence in Oregon after selling his house. His testimony indicated, for

example, that he used his father’s Oregon address simply as a matter of

convenience when he wanted things sent to Oregon instead of

California. For matters of importance, such as his income tax returns,

he used the address of his California residence. By contrast, Mr.

Anderson admitted that he never used his father’s address on a tax

return. And while some of the federal income tax returns in the record

are accompanied by copies of documents relating to California state

income taxes, there are no similar documents relating to Oregon state

income taxes.

On balance, considering the duration of Mr. Anderson’s

connections to California, which began even before he established a

residence there, along with his significant business connections in the

state, the presence there with him of his wife and his son, the degree of

attachment to California illustrated by his tax and travel documents,

his lack of a permanent residence elsewhere, and his decision to remain

in California to start a new business venture of indefinite duration, we

are persuaded that Mr. Anderson established his residence in California

and formed an intent to remain there no later than 2005. We therefore

conclude that half of his income for the years at issue is allocable to Ms.

Jaha as community property under California law.

IV. Unreported Gross Receipts

Turning to the disputed gross receipts for the years at issue, we

conclude that Mr. Anderson’s multilevel marketing business generated

gross receipts in the amounts the IRS determined.

11

[*11] Mr. Anderson admitted at trial that he earned income as an

independent contractor for Mannatech that was paid to the trust and to

Redefining Wellness and that he signed income tax returns for the years

at issue reporting Schedule C gross receipts in amounts equal to or

greater than the amounts the IRS determined in the relevant Notice of

Deficiency. A taxpayer’s reporting of gross receipts in a signed return

submitted to the IRS is an admission that the taxpayer received the

amount reported, even where (as here) the IRS does not ultimately

accept the return for filing. See Aulisio v. Commissioner, T.C. Memo.

2024-29, at *13. Such an admission can be overcome only by cogent

evidence. See Estate of Hall v. Commissioner, 92 T.C. 312, 337–38

(1989).

Mr. Anderson now attempts to retreat from his admissions by

arguing that (1) the RA improperly reconstructed his gross receipts for

2005 and 2006 using the source and application of funds method without

adequately accounting for business expenses he incurred and (2) he did

not actually have any gross receipts for the years at issue because his

commissions were paid to the trust and Redefining Wellness rather than

directly to him. Those arguments are unpersuasive and inconsistent

with the evidence.

Where a taxpayer fails to keep books and records sufficient for the

Commissioner to determine his or her correct tax liabilities, or if those

records do not clearly reflect income, the Commissioner may reconstruct

the taxpayer’s income using a method that clearly reflects the full

amount received. Petzoldt v. Commissioner, 92 T.C. 661, 686–87 (1989).

The method used need only be reasonable under all the facts and

circumstances. Id. at 687.

While it is true that improperly accounting for disallowed expense

deductions may introduce error into a reconstruction of income under

the source and application of funds method, which involves comparing

known cash expenditures with known receipts, see Cheesman v.

Commissioner, T.C. Memo. 1994-509, there is no indication that the RA

used that method here. Instead, the RA credibly testified that he

estimated Mr. Anderson’s gross receipts for 2005 and 2006 as 58% of the

amounts reflected on the Forms 1099–MISC that Mannatech issued to

the trust for those years. He explained, consistently with the amounts

reflected in the relevant Notice of Deficiency and the underlying

documents from the examination file, that he derived that percentage

from Mr. Aulisio’s representations concerning the extent to which some

12

[*12] or all of the commissions paid to the trust in 2005–07 may have

belonged to Mannatech distributors other than Mr. Anderson.

The RA’s testimony conflicted with Mr. Aulisio’s testimony

concerning whether they agreed on the best method for estimating Mr.

Anderson’s 2005 and 2006 gross receipts. But even if we accept Mr.

Aulisio’s testimony at face value, it proves at most that he believed the

RA’s approach understated the gross receipts in question and that it was

Mr. Aulisio (rather than the RA) who thought Mr. Anderson must have

generated even more gross receipts because of the expenses he incurred.

The RA, however, never accepted the figures shown in the returns that

Mr. Aulisio prepared and never received substantiation for the expenses

reported therein. Under these circumstances, we see no basis for

concluding that the RA’s estimates were unreasonable or that there is

sufficient evidence to overcome Mr. Anderson’s admissions in the 2005

and 2006 returns that his gross receipts were not less than the amounts

the RA determined.

Mr. Anderson’s broader claim that none of the payments to the

trust and Redefining Wellness are includible in his gross receipts is

inconsistent with his admissions in both the returns for the years at

issue and his trial testimony. In any event, a taxpayer may not exclude

an economic gain from his or her income by assigning it in advance to

another party. Lucas v. Earl, 281 U.S. 111, 114–15 (1930). In cases

where compensation for personal services performed by an individual is

paid to a corporation wholly owned by that individual, or to a trust, we

look to who controlled the earning of the income to determine who truly

earned it. See Johnson v. Commissioner, 78 T.C. 882, 891 & n.15 (1982),

aff’d, 734 F.2d 20 (9th Cir. 1984) (unpublished table decision); Am. Sav.

Bank v. Commissioner, 56 T.C. 828, 839 (1971). The record does not

include employment agreements, contracts, or other evidence sufficient

to establish that the trust or Redefining Wellness had sufficient control

over Mr. Anderson’s performance of services in his multilevel marketing

business to support a conclusion that one of those entities, rather than

Mr. Anderson, earned the gross receipts in question. See Leavell v.

Commissioner, 104 T.C. 140, 155–59 (1995) (attributing income to

individual taxpayer where facts and circumstances did not establish he

was an employee of his personal service corporation); Wesenberg v.

Commissioner, 69 T.C. 1005, 1010–11 (1978) (holding conveyance of

income to a trust ineffective where trust did not control taxpayer’s

earning of income).

13

[*13] Accordingly, we sustain the IRS’s determinations that Mr.

Anderson had unreported gross receipts for the years at issue in the

amounts determined in the relevant Notice of Deficiency.

V. Deductions

A. Ordinary and Necessary Business Expenses

Although the IRS determined in the relevant Notice of Deficiency

that Mr. Anderson was not entitled to any deductions for expenses

incurred in connection with his multilevel marketing business,

respondent now concedes that Mr. Anderson is entitled to deduct the

following amounts: (1) “downline incentive” expenses of $1,900, $1,900,

$1,804, $2,046, and $1,978 for 2005–09, respectively; (2) office utility

expenses of $600 for each year at issue; and (3) travel expenses of $1,584

for 2007. Mr. Anderson contends that he is entitled to deduct the

following additional expenses: (1) expenses for travel and traveling away

from home, including all rent paid for the California apartment for the

years at issue, totaling roughly $40,000 per year; (2) telephone expenses

ranging from approximately $1,700 to $9,000 per year; and

(3) “office/leads/promotion” expenses of $1,563 per year.

Section 162 allows a taxpayer to deduct all ordinary and

necessary expenses paid or incurred during a taxable year in carrying

on a trade or business. § 162(a); Treas. Reg. § 1.162-1(a). Generally, if

a taxpayer demonstrates that he or she has actually incurred a

deductible expense but is unable to adequately substantiate the amount,

the Court should estimate the amount and allow a deduction to that

extent. Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). To

allow a deduction under the Cohan rule, however, we must have some

reasonable basis on which to estimate the amount of the expense.

Norgaard v. Commissioner, 939 F.2d 874, 879 (9th Cir. 1991), aff’g in

part, rev’g in part T.C. Memo. 1989-390; Vanicek v. Commissioner, 85

T.C. 731, 742–43 (1985).

But section 274 supersedes the Cohan rule for certain expenses,

which may not be estimated and are instead subject to strict

substantiation requirements. See § 274(d); Sanford v. Commissioner, 50

T.C. 823, 827–28 (1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969);

Temp. Treas. Reg. § 1.274-5T(a). The strict substantiation requirements

apply to travel expenses, including meals and lodging while away from

home, and expenses relating to “listed property,” including passenger

14

[*14] automobiles and cellular telephones. 9 §§ 274(d), 280F(d)(4)(A);

Temp. Treas. Reg. § 1.274-5T(a); see also Boyd v. Commissioner, 122 T.C.

305, 320 (2004). A taxpayer generally must substantiate such expenses

with adequate records, or by sufficient evidence corroborating the

taxpayer’s own statement, establishing (1) the amount of the expense;

(2) the time and place it was incurred; and (3) its business purpose.

Balyan v. Commissioner, T.C. Memo. 2017-140, at *7; Temp. Treas. Reg.

§ 1.274-5T(b).

Substantiation by adequate records requires the taxpayer to

maintain (1) an account book, diary, log, statement of expense, trip

sheet, or similar record prepared contemporaneously with the

expenditure and (2) documentary evidence, such as receipts or paid bills,

which together establish each element of an expenditure. Balyan, T.C.

Memo. 2017-140, at *8; Treas. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg.

§ 1.274-5T(c)(2). In the absence of such records, a taxpayer may offer a

reasonable reconstruction of the expenditures, but only after proving

that he or she once possessed adequate records that were lost to fire,

flood, or other casualty. See Boyd, 122 T.C. at 320–21; Gizzi v.

Commissioner, 65 T.C. 342, 345 (1975); Temp. Treas. Reg. § 1.274-

5T(c)(5). A reconstruction of a taxpayer’s expenditures still must

establish all elements of each expense as required under section 274 and

the regulations. See Boyd, 122 T.C. at 320–21; Colvin v. Commissioner,

T.C. Memo. 2012-26, slip op. at 19.

Mr. Anderson’s attempt to substantiate his business expenses

rests on a one-page table reflecting general estimates of the amounts

expended in each category for each year at issue. Mr. Aulisio testified

that he prepared the table during the IRS’s examination and that the

estimates therein primarily reflect extrapolations from a handful of

airline receipts for travel that took place in 2007, along with hundreds

of other receipts that did not directly document the claimed expenses,

but which he used to estimate how many days petitioners spent in

California in 2007 and 2008. Mr. Anderson’s testimony offered little

additional information about his business expenditures beyond generic

assertions that almost all of his expenses during the years at issue

related to his business and that he traveled regularly for business

purposes. He nevertheless urges us to accept the estimates reflected in

9 Congress removed cellular telephones and similar communications

equipment from the definition of listed property for taxable years beginning after

December 31, 2009. See Small Business Jobs Act of 2010, Pub. L. No. 111-240, § 2043,

124 Stat. 2504, 2560.

15

[*15] the table pursuant to the Cohan rule or, alternatively, as a

reasonable reconstruction of any expenditures subject to the section 274

strict substantiation requirements.

To the extent that Mr. Anderson’s reported expenditures are

subject to section 274, he has failed to establish that we may accept a

reconstruction of his expenses. The evidence supporting Mr. Anderson’s

contention that he once possessed adequate records, until a business

associate disposed of them around 2010, is simply not credible. His

testimony to that effect is inconsistent with his own prior statement to

the RA indicating that he merely lost his records while moving. And his

attempt to buttress his testimony by producing a copy of an email that,

in his telling, reflects his former office manager’s description of the

circumstances surrounding the loss of his records, only further

undermines his credibility. That email was sent from Mr. Anderson’s

own email account, years after the events in question, and may never

have been seen by the purported recipient. It reflects no more than an

unpersuasive, self-serving statement drafted by Mr. Anderson himself

to explain away his lack of adequate records. See Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986) (stating that we are not bound to

accept a taxpayer’s self-serving testimony).

In any event, Mr. Anderson’s reconstruction of his expenditures

is insufficient to substantiate any expenditure subject to the section 274

strict substantiation requirements. For the travel-related expense

categories, for example, Mr. Anderson has not produced sufficient

information to establish the dates or business purpose of any specific

trip. 10 See Colvin, T.C. Memo. 2012-26. Furthermore, to whatever

degree the claimed expenses might not be subject to the strict

substantiation requirements, Mr. Anderson has not produced sufficient

information on which we could base a Cohan estimate. He has not

explained, for example, what types of expenses he categorized as

“office/leads/promotion” or identified any specific documentation of those

expenditures. Under these circumstances, any estimate would amount

to “unguided largesse.” See Norgaard v. Commissioner, 939 F.2d at 879

(quoting Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957)).

10 To the extent Mr. Anderson seeks to deduct rent paid for the California

apartment, he is also precluded from doing so by section 280A(a), which generally

disallows any otherwise allowable deduction relating to the use of a taxpayer’s

residence. Mr. Anderson does not contend that his use of the apartment qualifies for

any exception, such as the business use exception under section 280A(c)(1), nor is there

sufficient evidence in the record to establish that one applies. See Hamacher v.

Commissioner, 94 T.C. 348, 353–54 (1990).

16

[*16] We have no obligation to sift through the receipts in the record to

determine whether any of them might support Mr. Anderson’s general

estimates. See, e.g., Hale v. Commissioner, T.C. Memo. 2010-229, slip

op. at 6.

We therefore conclude that Mr. Anderson is not entitled to any

deductions for business expenses in excess of the amounts respondent

has conceded.

B. Self-Employed Health Insurance Expenses

Mr. Anderson also contends that he is entitled to deduct self-

employed health insurance expenses paid in 2005 and 2006. See § 162(l).

However, Mr. Anderson has not established the amounts of those

expenses, and he cites no evidence on which we could base an estimate

under the Cohan rule. We therefore conclude that he is not entitled to

any deduction for health insurance expenses. See Larkin v.

Commissioner, T.C. Memo. 2020-70, at *57, aff’d per curiam, No. 21-

1103, 2022 U.S. App. LEXIS 8911 (D.C. Cir. Apr. 1, 2022).

C. Second Dependency Exemption Deduction for 2009

Mr. Anderson further contends that he is entitled to claim two

dependency exemption deductions for 2009. Respondent concedes that

Mr. Anderson may claim one such deduction for that year, but disputes

his entitlement to a second deduction.

Section 151(a) and (c) allows a deduction for an “exemption

amount for each individual who is a dependent (as defined in section

152) of the taxpayer for the taxable year.” A “dependent” is defined as

either a “qualifying child,” see § 152(a)(1), (c), or a “qualifying relative,”

see § 152(a)(2), (d), of the taxpayer. This definition is disjunctive, so a

taxpayer may claim a deduction for an individual who meets the

requirements applicable to either a qualifying child or a qualifying

relative. Sheikh v. Commissioner, T.C. Memo. 2010-33, slip op. at 5.

Those requirements include, with respect to a qualifying child, that the

individual must have had the same principal place of abode as the

taxpayer for more than half of the taxable year. § 152(c)(1)(B). For an

individual to be a qualifying relative, the taxpayer must have provided

over half of the individual’s support for the year, and the individual must

not be a qualifying child of any taxpayer. § 152(d)(1)(C) and (D).

Mr. Anderson testified that he had one child during the years at

issue, but he cites no evidence proving that he had a second child or, if

17

[*17] he did, whether that child was a qualifying child or a qualifying

relative under the relevant requirements. We therefore conclude that

Mr. Anderson is entitled to only one dependency exemption deduction

for 2009.

D. Property Tax Expense

The parties’ final dispute relating to deductions concerns whether

Mr. Anderson may deduct property tax of $2,600 paid for 2005. See

§ 164(a)(1). Respondent contends that Mr. Anderson has not shown that

he paid property tax in that year although respondent concedes that he

did pay mortgage interest.

In view of respondent’s concession with respect to mortgage

interest, we are persuaded that Mr. Anderson also paid property tax in

2005. Bearing heavily against Mr. Anderson, “whose inexactitude is of

his own making,” see Cohan v. Commissioner, 39 F.2d at 543–44, we

conclude that his property tax expense for 2005 was $650.

VI. Self-Employment Tax

In his Petition, Mr. Anderson assigned error to the IRS’s

determinations that he is liable for self-employment tax with respect to

the income earned through his multilevel marketing business for the

years at issue. See §§ 1401, 1402. Petitioners do not press this issue on

brief, and we deem it abandoned. See Davis v. Commissioner, 119 T.C.

1, 1 n.1 (2002). Accordingly, we sustain the IRS’s determinations

concerning Mr. Anderson’s liability for self-employment tax.

VII. Additions to Tax

Finally, petitioners contend that the IRS erred in determining

that they are liable for additions to tax under sections 6651(a)(1) and (2)

and 6654. As indicated supra p. 7, the Commissioner bears the burden

of production with respect to an addition to tax that an individual

taxpayer has contested in his or her petition. See § 7491(c); Funk v.

Commissioner, 123 T.C. 213, 216–18 (2004). To satisfy that burden, the

Commissioner must offer sufficient evidence to indicate that imposing

the addition to tax is appropriate. Higbee, 116 T.C. at 446.

Section 6651(a)(1) authorizes the imposition of an addition to tax

if a taxpayer fails to file his or her income tax return by the due date

(including any extension of time for filing). To carry the burden of

production with respect to an addition to tax under section 6651(a)(1),

18

[*18] the Commissioner must introduce evidence showing that the

taxpayer did not file a return by the due date. See Wheeler, 127 T.C. at

207–08. Section 6651(a)(2) imposes an addition to tax for failure to pay

timely the amount of tax shown as due on a return. To carry the burden

of production with respect to an addition to tax under section 6651(a)(2),

the Commissioner must produce evidence that a return, or a substitute

therefor, was filed showing the tax liability for the relevant year. See

Wheeler, 127 T.C. at 210. If the Commissioner satisfies his burden of

production, the taxpayer bears the burden of proving the failure to

timely file or pay was due to reasonable cause and not willful neglect.

Higbee, 116 T.C. at 446–47; see also § 6651(a)(1) and (2).

The record establishes that petitioners failed to file income tax

returns for the years at issue by their due dates, see §§ 6072(a), 6081(a),

and that the IRS consequently filed SFRs on their behalf. Respondent

produced copies of the SFRs showing Mr. Anderson’s tax liability for

each of the years at issue. Respondent also produced copies of the SFRs

showing Ms. Jaha’s tax liability for each of the years at issue except

2008. Accordingly, respondent has satisfied the burden of production

with respect to the section 6651(a)(1) and (2) additions to tax, except for

the section 6651(a)(2) addition to tax determined against Ms. Jaha for

2008.

Petitioners do not contend on brief that their failures to file

returns or pay the tax due were due to reasonable cause and not willful

neglect, and we therefore deem any such argument abandoned. See

Davis, 119 T.C. at 1 n.1. Accordingly, we sustain the IRS’s

determinations that petitioners are liable for additions to tax under

section 6651(a)(1) and (2), except that we do not sustain the addition to

tax determined against Ms. Jaha under section 6651(a)(2) for 2008. We

expect that the parties will make appropriate adjustments to the

amounts of those additions to tax in their Rule 155 computations. See

supra notes 2 and 3.

Section 6654 imposes an addition to tax if an individual taxpayer

underpays at least one of four required installments of estimated tax.

§ 6654(a), (b), and (c). Each required installment is equal to 25% of the

“required annual payment,” which is generally calculated as the lesser

of (1) 90% of the tax shown on the taxpayer’s return for the taxable year

(or, if the taxpayer did not file a return, 90% of the tax due for the year),

or (2) 100% of the tax shown on the taxpayer’s return for the preceding

taxable year. § 6654(d)(1). To satisfy the burden of production for an

addition to tax under section 6654, the Commissioner must produce

19

[*19] sufficient evidence to establish whether the taxpayer had a

required annual payment, including whether the taxpayer filed a return

for the preceding taxable year and, if so, the amount of tax shown on

that return. Wheeler, 127 T.C. at 211–12. For purposes of determining

whether a taxpayer had a required annual payment, an SFR is not

treated as the taxpayer’s return. Duma v. Commissioner, T.C. Memo.

2009-304, slip op. at 18 n.6.

Respondent has produced sufficient evidence to establish that

petitioners did not file returns for 2004, which was the year preceding

the first year at issue, or for any of the years at issue. Each petitioner’s

required annual payment for each of the years at issue was thus 90% of

the tax due for such year, and respondent has satisfied the burden of

production for the section 6654 additions to tax. Petitioners do not

contend, and the record does not establish, that any statutory exception

to those additions to tax applies. See § 6654(e). Accordingly, we sustain

the section 6654 additions to tax as determined in the Notices of

Deficiency.

We have considered all of the arguments made by the parties and,

to the extent they are not addressed herein, we find them to be moot,

irrelevant, or without merit.

To reflect the foregoing,

Decisions will be entered under Rule 155.