# Gina Jaha

> United States Tax Court · March 25, 2025

URL: https://www.frixlaw.com/law-library/cases/10830232

## Case

- **Court:** United States Tax Court
- **Decided:** March 25, 2025
- **Precedential status:** Unpublished
- **Opinion:** Opinion
- **Judges:** Ashford
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10830232

## How later opinions describe it (automated extraction)

- stating that we are not bound to accept a taxpayer’s self-serving testimony
- holding conveyance of income to a trust ineffective where trust did not control taxpayer’s earning of income

## Opinion text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10830232. Public record. Not legal advice.