# Jabir Algarawi & Amira Hachim

> United States Tax Court · January 26, 2026

URL: https://www.frixlaw.com/law-library/cases/11246142

## Case

- **Court:** United States Tax Court
- **Decided:** January 26, 2026
- **Precedential status:** Unpublished
- **Opinion:** Opinion
- **Judges:** Pugh
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

United States Tax Court

T.C. Memo. 2026-8

JABIR ALGARAWI AND AMIRA HACHIM,
Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

__________

Docket No. 6824-24. Filed January 26, 2026.

__________

Jabir Algarawi and Amira Hachim, pro sese.

Michael R. Harrel and Elizabeth K. Sichi, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PUGH, Judge: In a Notice of Deficiency dated January 22, 2024,
respondent determined deficiencies in petitioners’ federal income tax of
$18,855 for 2020 and $24,138 for 2021 attributable to unreported
income. Respondent also determined that petitioners were liable for
accuracy-related penalties under section 6662(a) 1 of $3,771 for 2020 and
$4,827.60 for 2021.

The issues remaining for decision are whether petitioners
(1) received discharge of indebtedness income of $5,615 in 2020; (2) had
unreported business income of $72,130 for 2020 and $93,614 for 2021;
and (3) are liable for accuracy-related penalties due to substantial

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.

Served 01/26/26
2

[*2] understatements of income tax, or, in the alternative, negligence. 2
We also must address a related evidentiary issue of whether Exhibits
22-P through 27-P should be excluded from the record.

FINDINGS OF FACT

Petitioners resided in Arizona when they timely filed their
Petition. Petitioners timely filed their joint Forms 1040, U.S. Individual
Income Tax Return, for 2020 and 2021.

I. Tax preparation

Mr. Algarawi was the president of a refugee community center,
the Arizona Allnation Refugee Resource Center (Allnation). In addition
to employment as a real estate broker, Mr. Algarawi prepared tax
returns through his sole proprietorship, Ali Tax Income. He prepared
1,294 returns in 2020 and 1,953 returns in 2021.

While Mr. Algarawi charged some clients for tax preparation
services, he did not charge others, namely refugees from Central Asia
and the Middle East. Mr. Algarawi encouraged clients to donate to
Allnation using a “donation box” outside his office. Mr. Algarawi did not
keep records of the cash deposits, nor did he give the donors receipts.
Mr. Algarawi deposited the cash into his personal bank account;
Allnation did not maintain a separate bank account.

Mr. Algarawi also received funds through a Facebook group
focused on helping the refugee community. Members of the group
solicited donations through posts for particular families in need. The
posts directed donors to Mr. Algarawi, who received the funds through
his Zelle account connected to his cell phone number. Mr. Algarawi did
not keep records of the donors or the amounts of their contributions, nor

2 When we called this case for trial Jabir Algarawi appeared, but Amira

Hachim did not. As a result of her failure to appear, we find that she is in default and
hold that she is bound by the outcome of this case. See Rule 123(a) (stating that any
party failing “to plead or otherwise proceed as provided by these Rules or as required
by the Court . . . may be held in default by the Court”); Rule 149(a) (“The unexcused
absence of a party or a party’s counsel when a case is called for trial will not be ground
for delay. The case may be dismissed for failure properly to prosecute, or the trial may
proceed and the case be regarded as submitted on the part of the absent party or
parties.”).
3

[*3] did he maintain any records of recipients of donations or the
amounts that they received.

On Schedules C, Profit or Loss From Business, attached to their
2020 and 2021 returns, petitioners reported $12,548 and $12,458,
respectively, in gross receipts from Ali Tax Income.

II. Citibank indebtedness

In 2020 Citibank, N.A., issued to Mr. Algarawi Form 1099–C,
Cancellation of Debt, reporting $5,615 in cancellation of debt income.
Citibank used a description of the debt of “The Home Depot Commercial
Revolving” and checked the box that Mr. Algarawi was personally liable
for repayment of the debt.

III. Respondent’s determinations

A revenue agent performed a bank deposits analysis for tax years
2020 and 2021 by reviewing petitioners’ bank accounts, adding up all of
their deposits, and subtracting all nontaxable items and transfers. The
analysis showed that petitioners underreported their gross receipts by
$72,130 for 2020 and $93,614 for 2021. The record includes a Civil
Penalty Approval Form signed by the revenue agent’s immediate
supervisor, dated December 1, 2023.

OPINION

I. Burden of proof

The taxpayer generally bears the burden of proving the
determinations set forth in a Notice of Deficiency are in error. See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The burden of proof
may shift to the Commissioner if the taxpayer introduces credible
evidence with respect to the issue and satisfies certain conditions.
§ 7491(a)(1) and (2). Petitioners have not alleged that section 7491(a)
applies, nor have they complied with substantiation requirements or
maintained adequate records. See § 7491(a)(2). Therefore, the burden of
proof generally remains with petitioners.

In the case of unreported income the Commissioner must
establish “some evidentiary foundation” connecting the taxpayer with
the income-producing activity, Weimerskirch v. Commissioner, 596 F.2d
358, 361–62 (9th Cir. 1979), rev’g 67 T.C. 672 (1977), or otherwise
demonstrate that the taxpayer received unreported income, Edwards v.
4

[*4] Commissioner, 680 F.2d 1268, 1270–71 (9th Cir. 1982) (per curiam);
Walquist v. Commissioner, 152 T.C. 61, 67 (2019). In the U.S. Court of
Appeals for the Ninth Circuit, the court to which appeal in this case
would lie absent a stipulation to the contrary, see § 7482(b)(1)(A), (2),
the presumption attaches when the Commissioner introduces an
evidentiary foundation to show that the taxpayer received the
unreported income, Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th
Cir. 1999), aff’g T.C. Memo. 1997-97. Once the Commissioner has met
this threshold, the burden shifts to the taxpayer, who must establish by
a preponderance of the evidence that the deficiency determination was
erroneous. Id. Because the bank deposits analysis connects petitioners
with the income-producing activity, the burden of proving that
respondent’s determinations are wrong shifts back to petitioners.

II. Petitioners’ unreported income

A. Discharge of indebtedness

Section 61(a) provides that gross income includes “all income from
whatever source derived.” Gross income also generally includes income
from the discharge of indebtedness, subject to the exclusions in section
108(a). See § 61(a)(11).

Petitioners do not dispute that they received income through the
cancellation of credit card debt in 2020. Nor do they allege or offer any
evidence to suggest that the income is subject to one of the exclusions in
section 108(a).

Rather Mr. Algarawi stated at trial that he did not receive a Form
1099 for the cancellation of the debt. But “nonreceipt of a Form 1099
does not convert taxable income into nontaxable income.” See Rinehart
v. Commissioner, T.C. Memo. 2002-71, 2002 WL 459098, at *2 (citing
Vaughn v. Commissioner, T.C. Memo. 1992-317, aff’d, 15 F.3d 1095 (9th
Cir. 1993) (unpublished table decision)). Because petitioners received
discharge of indebtedness income that is not subject to one of the section
108(a) exclusions, we sustain respondent’s determination.

B. Unreported gross receipts

Section 6001 requires that each person maintain books and
records “sufficient to show whether or not such person is liable for tax.”
See also DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), aff’d, 959 F.2d
16 (2d Cir. 1992).
5

[*5] The Internal Revenue Service may compute an individual’s
taxable income by any method that clearly reflects income when the
individual does not maintain adequate books and records. See § 446(b).
Bank deposits are “prima facie evidence of income.” Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986). And “[t]he use of the bank deposit
method for computing unreported income has long been sanctioned by
the courts.” Estate of Mason v. Commissioner, 64 T.C. 651, 656 (1975),
aff’d, 566 F.2d 2 (6th Cir. 1977). Mr. Algarawi did not maintain books
and records for Ali Tax Income as required. And respondent, through
the bank deposits method, determined that petitioners received
unreported income. 3

1. Petitioners’ proof

Petitioners contend that this unreported income represents
donations. Mr. Algarawi testified that he prepared some clients’ returns
free of charge and that community members made donations in
acknowledgment of his services. Mr. Algarawi further stated that he
used these contributed funds directly to pay the expenses (e.g., rent and
utilities) of families in need.

Petitioners failed to introduce any admissible evidence
corroborating Mr. Algarawi’s testimony. 4 At trial petitioners offered
Exhibits 22-P through 27-P to show that Mr. Algarawi provided free tax
preparation services to the community, received money from community
members, and gave money to other community members in need.
Respondent objected on the basis of untimely disclosure, hearsay, and
relevance; we reserved ruling on their admissibility.

3 Petitioners did not contend, nor do we find evidence to suggest, that any

portion of the gross receipts that petitioners did report for Ali Tax Income were
included as unreported income in respondent’s bank deposits analysis.
4 Mr. Algarawi requested a continuance when this case was called from the

calendar at the April 28, 2025, Phoenix, Arizona, trial session, seeking additional time
to produce witnesses to testify in support of his case in chief. However, this case had
been set for trial by notice and order issued December 2, 2024, and Mr. Algarawi did
not explain why he had not tried to secure witness testimony sooner or sought a
continuance earlier than the morning of trial. Moreover, petitioners did offer into
evidence letters dated just before trial from potential witnesses. We explain below why
these documents would not fill the holes in Mr. Algarawi’s proof even were we to
conclude they are admissible. These documents likewise suggest that the testimony of
Mr. Algarawi’s proposed witnesses would not fill the evidentiary gap left by the lack of
any contemporaneous records.
6

[*6] Exhibit 22-P is a letter from Allnation dated April 24, 2025,
commending Mr. Algarawi for his humanitarian efforts and for offering
free tax return preparation services to community members. Exhibits
23-P and 26-P are letters from community members dated April 21 and
April 10, 2025, respectively, stating that Mr. Algarawi did not charge for
the tax return preparation services provided. Exhibits 24-P and 25-P are
letters both dated April 21, 2025, from two community members stating
that the money paid to Mr. Algarawi was intended to be a charitable
contribution. And Exhibit 27-P is a letter dated April 20, 2025, from a
community member stating that Mr. Algarawi gave money to help pay
her family’s rent.

The Standing Pretrial Order issued to the parties states that the
parties should file a stipulation of facts with the Court at least 14 days
before the date set for trial and that parties should exchange all other
documents expected to be used at trial at least 14 days before the date
set for trial.

Rule 131(b) states that failure to comply with a standing pretrial
order may subject a party to sanctions. The Standing Pretrial Order
warns that one possible sanction for violating the 14-day rule is the
exclusion of evidence that was not exchanged in accordance with that
requirement. See Rodriguez v. Commissioner, T.C. Memo. 2017-173,
at *5 (citing Moretti v. Commissioner, 77 F.3d 637, 644 (2d Cir. 1996)).
The 14-day rule is intended to allow the opposing party the opportunity
to review evidence to prepare any challenge or rebuttal. Kornhauser v.
Commissioner, T.C. Memo. 2013-230, at *9 n.4 (citing Dunn v.
Commissioner, T.C. Memo. 1988-45), aff’d, 632 F. App’x 421 (9th Cir.
2016). “[T]he rule prevents an ‘ambush’ with last-minute evidence that
could have been presented to the opposing party during preparation for
trial.” Id.

In weighing the appropriate sanction for violation of the 14-day
rule, we consider whether the opposing party was prejudiced by the
failure. See, e.g., Thompson v. Commissioner, T.C. Memo. 2011-291,
2011 WL 6382704, at *2 n.8; Morris v. Commissioner, T.C. Memo. 2008-
65, 2008 WL 704208, at *1, aff’d, 431 F. App’x 535 (9th Cir. 2011). We
also consider why a party failed to comply with the standing pretrial
order, and whether that party had good cause. See Kaplan v.
Commissioner, T.C. Memo. 2016-149, at *9–10.

Mr. Algarawi’s late production of documents prejudiced
respondent as respondent did not have sufficient time to review and
7

[*7] independently verify the documents. See Enis v. Commissioner,
T.C. Memo. 2017-222, at *24, *26. Nor did Mr. Algarawi offer any
explanation for his failure to provide the documents earlier.

Beyond their untimely disclosure, Exhibits 22-P through 27-P
constitute hearsay. See Rule 143(a); Fed. R. Evid. 802. We have not
identified an applicable exception to the hearsay rule, nor have
petitioners raised one. See Fed. R. Evid. 803. The proposed Exhibits
therefore would have limited utility as evidence.

Finally, even if we were to admit these documents, they would not
help us resolve the issue that we must decide here: whether the deposits
into petitioners’ accounts identified in the bank deposits analysis were
taxable income to petitioners.

2. Purported donations

Gross income includes all income from whatever source derived,
§ 61(a), including “deposits into all accounts over which the taxpayer has
dominion and control,” Chambers v. Commissioner, T.C. Memo. 2011-
114, 2011 WL 2135376, at *7; see also Commissioner v. Glenshaw Glass
Co., 348 U.S. 426, 431 (1955). Mr. Algarawi argues in effect that the
deposits into his accounts constituted charitable contributions from
some individuals that he passed along to other individuals. Under this
theory, because he was not the ultimate recipient of the deposits but
rather a conduit between the original donor and the ultimate intended
recipient, these amounts do not constitute income to him under section
61(a). Aside from the letters discussed above, written years after the
deposits being questioned, he offers no evidence tying specific deposits
to the ultimate recipients. With no evidence showing which deposits
were passed along, we cannot conclude on this record that Mr. Algarawi
did not have dominion and control over any particular deposits.
Therefore, even if we accept his legal theory, we are unable to exclude
any particular deposits from petitioners’ gross income because he has no
proof to back any exclusion. 5

5 Petitioners likewise could not claim a charitable contribution deduction for

using the funds to support community members in need, even if they could establish
the amounts. Funds given directly to an individual for personal benefit are deemed
gifts; these funds are not deductible charitable contributions because they are not
given to a qualified organization. See § 170(c); Thomason v. Commissioner, 2 T.C. 441,
443 (1943); Dohrmann v. Commissioner, 18 B.T.A. 66, 69 (1929).
8

[*8] Nor can we conclude that the deposits at issue represented
donations Mr. Algarawi collected on behalf of Allnation. Neither Ali Tax
Income nor Allnation provided receipts to the purported donors, and Mr.
Algarawi deposited the funds into his personal bank accounts.
Petitioners did not introduce any evidence showing corresponding
transfers to Allnation, in part because Allnation did not maintain a
separate bank account. Other potential legal theories are equally
unavailing on this record. Only qualified charitable organizations may
accept donations on a tax-exempt basis. See § 501(a). And petitioners do
not contend that these amounts constitute excludable gifts to
petitioners. See § 102(a); Commissioner v. Duberstein, 363 U.S. 278, 285
(1960).

We do not question petitioners’ desire to support refugees in their
community, but the gaps in petitioners’ proof, especially given Mr.
Algarawi’s occupation as a paid tax return preparer, sink their
arguments.

3. Subsequent arguments

In a letter submitted to the Court after trial, petitioners raise two
additional arguments. 6 First, petitioners offer unsigned amended
returns for both 2020 and 2021, along with accompanying Forms 1099–
NEC, Nonemployee Compensation. Second, petitioners state that they
should be entitled for a “sick leave and family leave” credit because of
COVID–19. 7

Rule 34(b)(1)(G) provides that issues not raised in the petition are
deemed conceded. Petitioners did not raise these issues in a pretrial
memorandum, nor did they offer any evidence supporting these
arguments during trial. And while the Court has discretion to reopen
the record, we generally consider whether the moving party knew that
a fact was disputed, whether the evidentiary issue was foreseeable, and
whether the moving party had a good reason for the late production of
evidence. See, e.g., Nurumbi v. Commissioner, T.C. Memo. 2021-79, at *9
(citing George v. Commissioner, 844 F.2d 225, 229–30 (5th Cir. 1988),
aff’g Frink v. Commissioner, T.C. Memo. 1984-669). We also consider
whether admitting this evidence late would prejudice respondent, who

6 At the conclusion of trial the Court invited petitioners to file an informal letter

in lieu of posttrial briefing. We have considered both petitioners’ letter and
respondent’s response.
7 We infer that petitioners mean the credit allowed under the Families First

Coronavirus Response Act, Pub. L. No. 116-127, § 7001, 134 Stat. 178, 210–12 (2020).
9

[*9] could not examine or question the evidence as he might have at
trial. See id. at *9–10.

Petitioners offer no explanation for their failure to raise these
issues earlier, and respondent did not have an opportunity to review and
question evidence at trial. Nor did petitioners in their letter offer any
proof of entitlement to a credit under section 7001 of the Families First
Coronavirus Response Act. Petitioners have not met their burden of
proof, and therefore we sustain respondent’s determinations.

III. Section 6662 penalties

Section 6662(a) imposes an accuracy-related penalty equal to 20%
of the portion of an underpayment of tax required to be shown on a
return that is attributable to a “substantial understatement of income
tax” or “[n]egligence or disregard of rules or regulations.” See
§ 6662(b)(1) and (2). An understatement of income tax is “substantial” if
it exceeds the greater of 10% of the tax required to be shown on the
return or $5,000. § 6662(d)(1)(A). Negligence is defined as “any failure
to make a reasonable attempt to comply” with the Internal Revenue
Code and disregard includes “careless, reckless, or intentional
disregard.” § 6662(c).

The Commissioner generally bears the burden of production with
respect to a taxpayer’s liability for accuracy-related penalties. § 7491(c).
In particular the Commissioner must show that he complied with the
procedural requirements of section 6751(b)(1) for the accuracy-related
penalties imposed. § 7491(c). Section 6751(b)(1) provides that “[n]o
penalty under this title shall be assessed unless the initial
determination of such assessment is personally approved (in writing) by
the immediate supervisor of the individual making such determination
or such higher level official as the Secretary may designate.”

Once the Commissioner satisfies the burden of production, the
taxpayer bears the burden of proving that the Commissioner’s
determination is incorrect or that the taxpayer has an affirmative
defense such as reasonable cause. See § 6664(c); Rule 142(a); Higbee v.
Commissioner, 116 T.C. 438, 446–47 (2001). We decide whether a
taxpayer acted with reasonable cause and in good faith on a case-by-case
basis, taking into account all pertinent facts and circumstances. See
Treas. Reg. § 1.6664-4(b)(1). Circumstances that may signal reasonable
cause and good faith “include an honest misunderstanding of fact or law
10

[*10] that is reasonable in light of all of the facts and circumstances,
including the experience, knowledge, and education of the taxpayer.” Id.

For each year at issue respondent determined that petitioners are
liable for an accuracy-related penalty attributable to a substantial
understatement of income tax, or in the alternative, due to negligence
or disregard of rules or regulations. Respondent showed that the
understatement of income tax is substantial because it exceeds the
greater of $5,000 or 10% of the tax required to be shown on their return
for each year. And respondent also demonstrated that petitioners failed
to keep adequate book and records or substantiate items properly. This
failure is evidence of negligence. See Treas. Reg. § 1.6662-3(b). The
examining agent’s direct supervisor approved in writing the assertion of
the accuracy-related penalties under section 6662 for the 2020 and 2021
tax years. Respondent therefore has met the burden of production, and
we turn to whether petitioners have shown that the determinations are
incorrect or that an affirmative defense such as reasonable cause exists.

Petitioners did not allege that the determinations are incorrect,
and they have not met their burden of proving that they acted with
reasonable cause and in good faith. Mr. Algarawi is a paid tax return
preparer, having prepared over 3,000 tax returns during 2020 and 2021.
Yet he kept no record of the alleged charitable contributions and did not
maintain any (much less adequate) books and records for Ali Tax
Income. We therefore hold that petitioners are liable for the accuracy-
related penalties due to substantial understatements of income tax.

We have considered the parties’ remaining arguments, and to the
extent not discussed above, conclude those arguments are irrelevant,
moot, or without merit.

To reflect the foregoing,

Decision will be entered for respondent.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11246142. Public record. Not legal advice.