Robert A. Di Giorgio, Sr. & Zandra M. Di Giorgio

United States Tax Court

T.C. Memo. 2023-44

ROBERT A. DI GIORGIO, SR.,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

ROBERT A. DI GIORGIO, SR. AND ZANDRA M. DI GIORGIO,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket Nos. 15675-12, 15751-12. Filed March 29, 2023.

—————

Robert A. Di Giorgio, Sr., and Zandra M. Di Giorgio, pro sese.

Derek P. Richman, Angela J. Ganase, and Daniel C. Munce, for

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

BUCH, Judge: Robert Anthony Di Giorgio, Sr., was a mortgage

lender and real estate salesman who specialized in distressed

properties. He failed to report substantial income from those and other

activities for 2005 through 2007 (years in issue). With his unreported

income, Mr. Di Giorgio led a lavish lifestyle with extravagant vacations,

including one to the Philippines where he met his second wife. During

their marriage, he kept her in the dark about their true financial

situation. Through a bank deposits analysis, the Commissioner

determined income tax deficiencies, additions to tax, and civil fraud

Served 03/29/23

2

[*2] penalties. The Di Giorgios challenged the Commissioner’s

determinations, and Ms. Di Giorgio asserted that she is entitled to

innocent spouse relief under section 6015. 1 The Commissioner

established by clear and convincing evidence that Mr. Di Giorgio

underreported his income, that he underpaid his tax, and that those

underpayments were due to fraud. Ms. Di Giorgio established that she

is entitled to relief from joint and several liability.

FINDINGS OF FACT

Mr. Di Giorgio and his first wife incorporated Radius Capital

Corp. (Radius CA) in California in 1995. 2 They held all outstanding

shares as community property under California law. Radius CA

operated as a mortgage lender and issuer of mortgage-backed securities,

and Mr. Di Giorgio was its president and chief executive officer

throughout its existence. Radius CA did business under other names,

including Home Mortgage of America and Home Realty of America.

Radius CA elected to be treated as an S corporation for income tax

purposes.

Mr. Di Giorgio, his first wife, and their two sons moved to Cape

Coral, Florida, in 2003. They purchased a home in which they resided.

Mr. Di Giorgio’s first wife passed away in December 2005. After her

death, Mr. Di Giorgio continued working in Florida and remarried. We

discuss his relationship with his second wife separately, below.

I. Business and Other Income-Producing Activities

It is difficult to paint a precise picture of Mr. Di Giorgio’s business

activities. He held multiple bank accounts in his own name or in the

names of his businesses. He did business with more than 30 title

companies and myriad borrowers from whom he received and deposited

payments in both his business and personal accounts. He comingled

funds, moving money between those accounts and using business

accounts for personal expenses. He provided the Court little in the way

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

Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, all regulation

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all

relevant times, and all Rule references are to the Tax Court Rules of Practice and

Procedure. All monetary amounts are rounded to the nearest dollar.

2 Mr. Di Giorgio’s first wife died in December 2005 and is not a party to these

cases; Mr. Di Giorgio remarried in 2006. To reduce confusion, we refer to his first wife

only as his “first wife” and to his second wife as his “second wife” or “Ms. Di Giorgio.”

3

[*3] of books and records. Nevertheless, this is clear: Mr. Di Giorgio had

many sources of income. His major income sources include (1) real estate

sales, (2) Radius CA, (3) a similarly named entity, Radius Capital Corp.

of Florida (Radius FL), (4) a Scottrade brokerage account, and (5) other

miscellaneous sources.

A. Real Estate Sales

Mr. Di Giorgio earned income from selling real estate in 2005 and

2006. He sold 12 properties in 2005 and 7 properties in 2006. He

generally purchased “tax sale” homes that he would re-sell at higher

prices without much refurbishment. He was the sole owner of each

property he sold except one, which he co-owned with his first wife at the

time of her death.

B. Radius CA

Mr. Di Giorgio earned income from operating Radius CA in 2005

and 2006. He wrote checks from Radius CA to himself and used Radius

CA’s credit cards and bank accounts to pay personal expenses.

Radius CA earned income by making mortgage loans and selling

mortgage-backed securities. A mortgage-backed security is created

when a lender pools a group of mortgage loans and sells interests in the

pool to investors. During 2005 and 2006, Radius CA sold at least 15

mortgage-backed securities.

In connection with those securities, the Securities and Exchange

Commission (SEC) filed a complaint against Radius CA and Mr.

Di Giorgio alleging that they defrauded the Government National

Mortgage Association (Ginnie Mae). The SEC prevailed in 2015. Mr.

Di Giorgio and Radius CA were enjoined from selling mortgage-backed

securities and were held jointly and severally liable for disgorgement of

$1,427,095, which represented profits obtained from the violations. See

SEC v. Radius Cap. Corp., No. 2:11-cv-116-FtM-29DNF, 2015 WL

1781567, at *11 (M.D. Fla. Apr. 20, 2015). The U.S. Court of Appeals for

the Eleventh Circuit affirmed. See SEC v. Radius Cap. Corp., 653

F. App’x 744 (11th Cir. 2016).

According to Mr. Di Giorgio, Radius CA no longer operated as of

2007. But Radius CA was not completely inactive. That year, he

nominally made his second wife Radius CA’s president, using her

maiden name on the paperwork. In April 2007, Radius CA transferred

ownership of real property at 215 Flamingo Street, Fort Myers Beach,

4

[*4] Florida, to Mr. Di Giorgio by corporate warranty deed. His second

wife’s maiden name was used on the corporate warranty deed for Radius

CA, but it was not her signature. At trial, she did not recognize the

document or the signature. She was unaware of what a corporate

warranty deed was and was unsure of whether Radius CA or Mr.

Di Giorgio owned the Flamingo Street property. Mr. Di Giorgio

deposited the proceeds of the sale in a personal bank account that he did

not share with his second wife.

C. Radius FL

Mr. Di Giorgio earned income from Radius FL, which was distinct

from Radius CA, in 2005 through 2007. His nephews were involved in

Radius FL, but its operations, ownership, and relationship to Radius CA

are unclear from the record. Automatic Data Processing, Inc. (ADP),

periodically issued checks to Mr. Di Giorgio from Radius FL in 2005 and

2006. And throughout the years in issue, he frequently withdrew cash

and wrote checks to himself from Radius FL’s bank account, and he

deposited those checks in his personal accounts. Memos written on the

checks included, among others, “income dispersement” (sic), “return on

investment,” “multiple commissions,” and “multiple accounts.” Radius

FL used Mr. Di Giorgio’s mortgage license in its operations because it

did not otherwise have one.

D. Scottrade Brokerage Account

In 2007, Mr. Di Giorgio earned income from trading securities

through a Scottrade brokerage account. He transferred at least $805,000

to the account that year. He received dividends totaling $29,791.

E. Miscellaneous

Mr. Di Giorgio had other sources of both nontaxable and taxable

income including a life insurance policy, retirement accounts, and a

company called Quickbling Investment Corp., Inc. (Quickbling).

In March 2006, Mr. Di Giorgio received $1,008,039 representing

proceeds from an insurance policy on the life of his first wife. He

deposited those proceeds in a personal account.

In February 2007, he incorporated Quickbling. In May 2007, he

made his second wife nominal vice president, but she did not work for

Quickbling and did not know its business purpose. It is unclear from the

5

[*5] record what Quickbling did, and its one bank account included in

the stipulation had little activity.

Mr. Di Giorgio received retirement account distributions totaling

$88,781 during 2007. He was in his midforties that year.

II. Lifestyle

Mr. Di Giorgio’s income funded his lifestyle. He owned a four-

bedroom waterside home. He also owned a beach house at which his sons

from his first marriage resided at times. He owned multiple cars, boats,

and jet skis, and he spent large sums at marinas. In 2007, he traded his

boat toward the purchase of a $300,000 yacht. He traveled regularly,

stayed in expensive hotels, and purchased airfare and other items for

family members.

III. Reporting

On federal income tax returns that he prepared, Mr. Di Giorgio

painted a picture that differed from the lifestyle he led. For each year in

issue, Mr. Di Giorgio filed a Form 1040, U.S. Individual Income Tax

Return, on which he reported taxable income of zero. As president of

Radius CA, he filed Form 1120S, U.S. Income Tax Return for an

S Corporation, for 2005 but failed to do so for 2006 and 2007. He filed

his returns late for each year in issue.

A. 2005 Returns

Mr. Di Giorgio filed his 2005 individual return with the status of

married filing separately. He reported adjusted gross income (AGI) of

$50,192, which consisted of $37,685 of wages, $105,029 of taxable

interest, a $9,018 net profit from Schedule C, Profit or Loss From

Business, a net loss of $85,673 from Schedule E, Supplemental Income

and Loss, and self-employment deductions totaling $15,867. Radius FL

issued a Form W–2, Wage and Tax Statement, for the wages Mr.

Di Giorgio reported, but he did not attach the Form W–2 to his return.

Instead, he attached Form 4852, Substitute for Form W–2, Wage and

Tax Statement, or Form 1099–R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., on which he listed himself as both the payor and the

payee of the wages. The Schedule C profit stemmed from Radius CA, for

which he reported gross receipts or sales of $62,951 and expenses

totaling $53,933. He claimed itemized deductions and exemptions far

greater than his AGI and reported taxable income of zero. The

6

[*6] Schedule E loss stemmed from rental real estate activities. On

Schedule E, Part I, Income or Loss From Rental Real Estate and

Royalties, Mr. Di Giorgio reported six rental real estate properties, rents

of $1,920, and expenses totaling $87,593. Mr. Di Giorgio did not include

Schedule E, Part II, Income or Loss From Partnerships and

S Corporations.

Mr. Di Giorgio also filed a 2005 Form 1120S for Radius CA. He

reported net ordinary business income of $105,029, matching the

amount reported on his personal Schedule B, Interest and Ordinary

Dividends. That net amount consisted of $3,501,052 of gross receipts

and deductions totaling $3,396,023. Among others, the deductions

included $489,606 for salaries and wages, $1,890,013 for commissions,

and $37,685 for officer compensation—the same amount that Mr.

Di Giorgio reported as his wages on his Form 1040. However, ADP

records showed that Radius FL, not Radius CA, paid Mr. Di Giorgio

those wages. Further, ADP records showed that Radius CA paid its

employees considerably less wages than Mr. Di Giorgio reported as

expenses; ADP sent him payroll records showing wages of $247,927.

B. 2006 Returns

Mr. Di Giorgio filed two Forms 1040 for 2006. He filed an original

return electing qualifying widower status. He later filed an amended

joint return with his second wife, which the Internal Revenue Service

(IRS) accepted, but the parties agree that his correct status is surviving

spouse.

The Di Giorgios reported negative AGI of $388,259, which

consisted of $22,201 of wages, $27,929 of taxable interest, a $4,551 loss

deduction from Schedule C, a $3,000 capital loss deduction from

Schedule D, Capital Gains and Losses, a $437,391 loss deduction from

Schedule E, $6,603 of unemployment compensation, and a $50 tuition

and fees deduction. They claimed itemized deductions, seven personal

exemptions, and an additional child tax credit. They reported taxable

income of zero and claimed a refund of $1,013.

The Schedule C loss stemmed from Radius CA. They reported

gross income of $49,330 and expenses totaling $53,881. Those expenses

included car and truck expenses for two vehicles. They reported 48,066

business miles (roughly 132 miles per day).

The Schedule E reflected a loss deduction from a combination of

rental real estate activities and Radius CA. On Schedule E, Part I, they

7

[*7] reported five rental properties, including Flamingo Street, which

Radius CA owned and Mr. Di Giorgio’s sons used as a residence. They

reported a $45,567 net loss, which consisted of rents of $880 and

expenses totaling $46,447. On Part II, they reported a $391,824 loss

from Radius CA. They provided an employer identification number but

did not file Form 1120S for Radius CA, so they failed to report how they

calculated that amount.

C. 2007 Return

Mr. Di Giorgio and his second wife filed a joint return for 2007.

They reported negative AGI of $5,310, which consisted of $3,300 of

wages, $24,013 of taxable interest, a $3,000 loss deduction from

Schedule D, a $32,689 loss deduction from Schedule E, $3,600 of state

unemployment compensation, and a $534 tuition and fees deduction.

They omitted Mr. Di Giorgio’s dividend income and retirement account

distributions. They claimed six exemptions and various itemized

deductions. They reported taxable income of zero.

The Schedule D loss stemmed from a short-term capital loss on

the sale of “CRNT” stock. The Schedule E loss reportedly stemmed from

rental real estate activities. On Schedule E, Part I, they reported one

rental property, Flamingo Street (which Radius CA had transferred to

Mr. Di Giorgio that year). They reported rents of $4,250 and expenses

totaling $36,939.

IV. IRS Examination

The IRS examined the 2005 through 2007 returns. The

examination began in or around 2008 and ended in 2011. The revenue

agent who conducted the examination considered Mr. Di Giorgio to have

been uncooperative and adversarial. There is no evidence that his

second wife was involved in the examination.

Mr. Di Giorgio failed to communicate with the revenue agent and

missed multiple scheduled meetings without notice. He changed his

phone numbers without informing the revenue agent, so she had to

contact him by mail, delaying the audit.

Mr. Di Giorgio failed to respond to document requests. The

revenue agent requested bank and business records several times. Mr.

Di Giorgio did not provide any bank records, although he did provide the

revenue agent with information about one account so she could find and

obtain the records herself. He informed the revenue agent that the SEC

8

[*8] took all of his business records and that he did not have copies. He

provided no information to help the revenue agent obtain his records

from the SEC, and there is no evidence that he ever attempted to reclaim

his own records.

The revenue agent obtained documents from third parties and

issued summonses to banks and title companies. She uncovered

multiple bank accounts, real estate sales, and mortgages that Mr.

Di Giorgio had failed to disclose. Whereas he told her about one bank

account and a few sales, she discovered more than ten of each.

During the audit, Mr. Di Giorgio gave the IRS four documents

that the revenue agent considered suspect or false. The documents

consisted of three invoices, each allegedly issued by a different person,

and one statement from an alleged real estate partner. All four

documents pertain to 3420 SE 4th Place, Cape Coral, Florida, a property

Mr. Di Giorgio purchased on August 1, 2005, and sold on December 7,

2005.

The revenue agent noticed that the invoices contained consistent

but unusual typographical errors. On all three, the issuer’s address

included a lowercase street designation (i.e., “ct”, “rd”, “lane”). She

noticed the same idiosyncrasy in multiple places on Mr. Di Giorgio’s

2006 and 2007 returns. Two of the invoices lacked a ZIP Code for the

sender. When the revenue agent tried looking up the addresses to find

the ZIP Codes, she discovered the addresses were invalid. She

attempted, but was unable, to contact any of the invoice issuers. Various

other oddities indicated that the invoices were fabricated, such as

bracketed invoice numbers or the statement “Make all checks payable

to [Your Company Name].” One is dated more than a year after Mr.

Di Giorgio sold the property. And although Mr. Di Giorgio sold the

property as “vacant land,” the invoices were for improvements such as

drywall or stucco.

The revenue agent also found a signed statement provided by Mr.

Di Giorgio to be suspect. The statement was allegedly from a business

partner, Ms. Russell (Russell statement), and read: “This is to confirm

that [Ms.] Russell was a 50% owner of the property located at 3420 4th

Place Cape Coral, Florida. 33904.” Although it was signed in Ms.

Russell’s name, it did not include any contact information and gave no

indication of the timeframe to which it applied. The revenue agent found

a canceled check written from Ms. Russell’s bank account amongst the

9

[*9] summoned bank records and compared it to the Russell statement.

The signatures were markedly different.

V. Bank Deposits Analysis

The revenue agent conducted a bank deposits analysis using

summoned records. The revenue agent calculated total deposits, then

considered nontaxable sources, transfers, previously reported income,

and deductible expenses. The revenue agent discovered unreported

income, which she categorized or attributed to various sources

depending on where it was deposited. She attributed personal account

deposits to a general category of unreported income (much of which came

from Radius FL, which was not included in the audit). Other categories

included gain from real estate sales, dividends, and retirement account

distributions. She attributed deposits in Radius CA’s accounts to

S corporation gross receipts.

Overall, despite determining that a significant portion of the

deposits was nontaxable, already reported, or included in other

adjustments, the Commissioner determined a large amount of

unreported income. The Commissioner categorized the unreported

income and unreported deposits as stemming from either Radius CA or

other sources. He determined taxable deposits from Radius CA of

$1,158,273 and $5,267,876 for 2005 and 2006, respectively. And he

determined other taxable deposits of $2,404,793, $1,374,340, and

$1,409,068 for 2005, 2006, and 2007, respectively.

VI. Civil Fraud Penalty

The revenue agent decided to assert fraud and accuracy-related

penalties. On June 15, 2011, the IRS mailed a Letter 915 (also known

as a 30-day letter) to the Di Giorgios for each year in issue. The IRS

included an examination report that asserted a fraud penalty for each

year with each 30-day letter. The revenue agent’s acting group manager

signed the 30-day letters before mailing.

VII. Notices of Deficiency

The Commissioner mailed two notices of deficiency on March 22,

2012, one to Mr. Di Giorgio for 2005, and the other to Mr. Di Giorgio and

his second wife for 2006 and 2007. In the notices, the Commissioner

determined taxable income of $6,688,864, $6,583,636, and $1,624,946

for 2005, 2006, and 2007, respectively. The Commissioner determined

the following deficiencies, additions to tax, and penalties:

10

[*10] Additions to Tax/Penalties

Year Deficiency

§ 6651(a)(1) § 6663

2005 $2,344,453 $586,113 $1,758,340

2006 2,294,704 573,423 1,720,313

2007 549,815 54,982 412,361

The deficiencies largely result from the unreported deposits in the

amounts discussed above. The parties agree that the other unreported

income amounts include unreported interest of $3,284, $15,030, and

$1,768 for 2005, 2006, and 2007, respectively. The Commissioner also

made various other income adjustments, reduced or disallowed some

deductions, and allowed several previously unclaimed deductions. The

Commissioner disallowed dependency exemptions for 2006. Finally, the

Commissioner made various computational adjustments.

A. Real Estate Sales (Schedule C)

The Commissioner determined Schedule C receipts from the sale

of property and allowed previously unreported income offsets to

calculate net gain. For 2005, the Commissioner determined a $419,000

net gain. For 2006, the Commissioner determined a $318,469 net gain.

The Commissioner disallowed deductions for reported Schedule C

expenses. For 2005, the Commissioner disallowed deductions for vehicle

and depreciation expenses and allowed $4,309 for various other

expenses (while disallowing $13,374). For 2006, the Commissioner

disallowed deductions for vehicle expenses and allowed $176 for various

other expenses (while disallowing $31,101). The Commissioner also

allowed an unclaimed mortgage interest expense of $51,537.

B. Rental Real Estate (Schedule E)

The Commissioner disallowed deductions for all rental real estate

losses reported on Schedules E for 2005 through 2007. The

Commissioner determined the rental activities were passive and that all

the expenses that generated the losses lacked substantiation. For 2007,

the Commissioner further determined that the rental activity was for a

vacation home for personal use.

11

[*11] C. Radius CA (Schedule E)

The Commissioner allocated all of Radius CA’s income to Mr.

Di Giorgio on the basis of his 100% ownership of Radius CA. For 2005,

the Commissioner determined a distributive share of $3,859,301. In

reaching that amount, the Commissioner allowed deductions totaling

$694,995. For 2006, the Commissioner determined a distributive share

of $4,905,005. In reaching that amount, the Commissioner allowed

unclaimed deductions for expenses (including salaries and wages,

commissions, advertising, interest, and “other” expenses) totaling

$362,871.

D. Dividends

The Commissioner determined dividends of $29,791 for 2007.

E. Capital Gain/Loss

For 2006 and 2007, the Commissioner disallowed claimed capital

loss deductions of $3,000 for both years. Mr. Di Giorgio agrees to the

disallowance for 2006, and the Commissioner concedes the 2007

adjustment.

F. Retirement Account Distributions

The Commissioner determined distributions of $88,780 for 2007

and imposed additional tax pursuant to section 72(t).

G. Unemployment Compensation

The Commissioner determined unemployment compensation of

$5,225, rather than the $3,600 Mr. Di Giorgio reported. Mr. Di Giorgio

agrees with the Commissioner’s determination.

H. Itemized Deductions

Because of a lack of substantiation, the Commissioner disallowed

claimed itemized deductions for 2005 and 2006. For 2005, the

Commissioner disallowed deductions for medical and dental expenses

and real estate taxes. For 2006, the Commissioner disallowed

deductions for personal property taxes and home mortgage interest.

12

[*12] VIII. Mr. Di Giorgio’s Second Wife

Mr. Di Giorgio met his second wife, Zandra Di Giorgio, online in

December 2005. She lived in the Philippines, where she was born and

raised. She was 26 years old and had two minor children from a prior

relationship. She had a high school education and had taken some

college nursing courses but never finished the program. Her work

history was limited to roughly two weeks of employment at a Dunkin

Donuts. English is not her first language.

Mr. Di Giorgio traveled to the Philippines in January 2006 and

their online relationship became an in-person one. Ms. Di Giorgio was

not accustomed to his lifestyle. He took her to expensive resorts, rented

her an apartment, and bought her gifts. After several months of

traveling to and from the Philippines, he proposed marriage, and she

accepted. She and her children moved to Cape Coral in July 2006. They

entered the United States on a “fiancée visa,” which she understood

required her to marry Mr. Di Giorgio within three months, and they

married in September 2006. However, she and her children were

considered nonresident aliens for 2006, and Mr. Di Giorgio had not

adopted her children as of the end of that year. See I.R.C. § 7701(b).

Compared to their long-distance relationship, their relationship

in Cape Coral was different. If Ms. Di Giorgio did something wrong or

was forgetful, Mr. Di Giorgio would “yell and scream [at the] top of his

lungs.” He disparaged her, for example, by telling her that she was “so

lucky that he took [her] out of that jungle.” Ms. Di Giorgio’s testimony

about this statement was credible and consistent with Mr. Di Giorgio’s

statements at trial; for example, he stated that “the dog always wags its

tail for the master and knows where it’s been fed” in reference to Ms.

Di Giorgio. She feared that if she didn’t do what he wanted, she would

jeopardize their relationship and her status in the United States.

Mr. Di Giorgio controlled family finances. Ms. Di Giorgio had no

experience with accounting, finance, mortgages, mortgage-backed

securities, real estate, or U.S. taxes. Mr. Di Giorgio discouraged her from

working outside the home, and she did not meaningfully participate in

his businesses. All she knew about his business was that he sold houses.

She was not a joint accountholder on any of the bank accounts that the

Commissioner included in his bank deposits analysis. Mr. Di Giorgio

gave her spending money in cash or by transferring it to her separate

account, but she was not primarily responsible for paying bills or

13

[*13] handling household expenses. She did not, for example, pay the

mortgage on their home during the years in issue.

Ms. Di Giorgio had never seen a U.S. tax return before 2008. That

year, she signed a joint return for 2007 that she played no role in

preparing. Mr. Di Giorgio gave her the signature page and told her to

sign it without showing her the other pages. She asked what she was

signing, but Mr. Di Giorgio told her she wouldn’t understand and

instructed her to just sign. She was afraid of disobeying him, so she

signed the return.

Ms. Di Giorgio was unaware of her husband’s legal and financial

problems when she signed the return, but they eventually came to light.

At the beginning of their relationship, she trusted him and saw him as

a financially successful person on the basis of their vacations in the

Philippines and the new lifestyle that greeted her in Florida. He was not

open about his issues with Ginnie Mae and the IRS; and although they

traveled less after she moved to Cape Coral, they still went on two

Caribbean vacations in 2007. However, after the years in issue, they

purchased a marital home and lost it in foreclosure. And when Ms.

Di Giorgio was pregnant with their second child in 2011, the SEC sued

Mr. Di Giorgio. She then came to understand that he named her as

president of Radius CA and vice president of Quickbling to avoid

government scrutiny. She was surprised by these revelations.

IX. Petitions and Request for Innocent Spouse Relief

On June 19, 2012, while residing in Florida, the Di Giorgios

timely petitioned for redetermination of their federal income tax

liabilities. In February 2014, Ms. Di Giorgio filed an Amendment to

Petition wherein she raised innocent spouse relief under section 6015

for 2006 and 2007, and she filed an administrative request for relief with

the Commissioner while these cases have been pending. The parties

agree that the Di Giorgios were ineligible for joint filing status for 2006,

and as a result, innocent spouse relief is no longer an issue for that year.

The Commissioner concedes that she is entitled to relief for 2007.

By the time of the trial in December 2021, the Di Giorgios’

relationship had deteriorated. They separated and had been living apart

since 2019. At trial, they were in the midst of a years-long divorce

proceeding.

Ms. Di Giorgio’s financial situation had also changed significantly

since the years in issue. During 2021, Ms. Di Giorgio had two

14

[*14] dependents and worked as an in-home caregiver earning $15 per

hour. She reported monthly income of $3,100 and living expenses of

$4,750. In December 2021, she was temporarily out of work because her

client had recently passed away. She reported having tangible assets

(including jewelry, furniture, and clothing) with an estimated value of

$22,500, but only $216 in cash. She reported liabilities of $201,419,

including first and second mortgages, credit card debt, and student

loans.

OPINION

These consolidated cases involve two taxpayers, two dockets, and

three years. Docket No. 15675-12 involves the redetermination of a

deficiency for 2005 as to Mr. Di Giorgio. Docket No. 15751-12 involves

the redetermination of deficiencies for 2006 and 2007 as to Mr.

Di Giorgio and Ms. Di Giorgio. Each year involves a tax deficiency, an

addition to tax for late filing under section 6651(a)(1), and a section 6663

civil fraud penalty (or a section 6662 accuracy-related penalty in the

alternative). Ms. Di Giorgio raised innocent spouse relief under section

6015 for 2006 and 2007, the years for which she is a party; however, the

parties have already agreed that she has no liability for 2006.

I. Mr. Di Giorgio’s Credibility

Before turning to our discussion, we must address Mr.

Di Giorgio’s credibility at trial. Mr. Di Giorgio’s testimony was not

credible. He tried to downplay his financial success. He testified that

vacationing in the Philippines was inexpensive because of exchange

rates. This explanation was inconsistent with Ms. Di Giorgio’s testimony

and his American Express statements, which show that he spent

thousands in U.S. dollars at luxury hotels. In 2006, he spent nearly

$40,000 at the Ritz Carlton in Florida. He testified that he chose to live

in Cape Coral because it was a cheap place to own a waterside home,

but he reported on a credit application that his home was valued at more

than $1 million. On the same credit application, he reported that his

gross monthly income was $33,000, which annualizes to $396,000.

Mr. Di Giorgio’s testimony about his records also lacked

credibility. He told the revenue agent that the SEC had seized them, but

he testified that “without notice, Ginnie Mae came out and they seized

everything at Radius [CA]” in early 2006. He testified that he never saw

the records again but then testified that he “saw copies of those records”

that “the SEC wanted to give [him].” He also testified that while he

15

[*15] “produced a lot of records” to substantiate his expenses, the

Commissioner allegedly lost them. His testimony is inconsistent with

the revenue agent’s testimony and with the documentary record. The

revenue agent returned his documents at the end of the audit and gave

him the summoned records at no cost.

Mr. Di Giorgio’s testimony about the Russell statement also

lacked credibility. After the revenue agent testified about the Russell

statement and the check she found from Ms. Russell’s bank account, Mr.

Di Giorgio testified that he was the one who gave the revenue agent the

check because it “was the only thing [he could] find” to show that Ms.

Russell was his partner in selling real estate. He further testified that,

because the “check . . . wasn’t good enough” for the revenue agent, he

solicited the Russell statement:

[W]hat I’m not speculating on is that I had asked [Ms.]

Russell to give me that documentation to prove . . . that she

was a partner. . . . At my request, Ms. Russell wrote me a

letter testifying to the facts about her ownership. . . . The

only reason to add the secondary document was because

the first document wasn’t clear enough for [the revenue

agent].

(Emphasis added.) After the IRS introduced the Russell statement at

trial, Mr. Di Giorgio changed his story. He testified that he could not

recall soliciting the statement or giving it to the Commissioner. He

further testified that during his earlier testimony, he “was speculating”

about what he would have done on the basis of the revenue agent’s

testimony that she questioned the check he “gave” her. (Emphasis

added.) The revenue agent found the check (he did not give it to her),

and she drew no connection between it and the Russell statement other

than to compare the signatures.

His testimony contradicted other witnesses’ testimony. For

example, he testified that his Schedule C vehicle expenses for 2006

included mileage for three people—himself, his second wife, and an

employee. He also testified that Ms. Di Giorgio participated in the

business during the years in issue. However, Ms. Di Giorgio testified

that she could not drive in 2006 and did not participate in the business

during the years in issue. He also testified that he held joint accounts

with Ms. Di Giorgio, which was inconsistent with her testimony and the

actual bank records. In sum, he was not credible

16

[*16] II. Deficiency (Unreported Income and Disallowed Deductions)

A. Burden of Proof

Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer bears the burden of

proving error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Taxpayers bear the burden of proving that they are entitled to claimed

deductions and credits. Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992). Carrying that burden requires the taxpayer to

“substantiate the nature, amount, and purpose of a claimed deduction.”

Sezonov v. Commissioner, T.C. Memo. 2022-40, at *4. In limited

situations, the burden may shift to the Commissioner under section

7491(a). The record does not support shifting the burden to the

Commissioner.

The Commissioner reconstructed Mr. Di Giorgio’s income using

the bank deposits method. Taxpayers must maintain books and records

sufficient to establish their income and expenses, and if they fail to do

so, the Commissioner may reconstruct income through any reasonable

method. I.R.C. §§ 6001, 446(b); Petzoldt v. Commissioner, 92 T.C. 661,

693 (1989); Treas. Reg. § 1.6001-1(a). We have long accepted the bank

deposits method for this purpose. DiLeo v. Commissioner, 96 T.C. 858,

881 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992); Clark v. Commissioner, T.C.

Memo. 2021-114, at *34. The bank deposits method assumes that all

money deposited into a taxpayer’s account is taxable income unless the

taxpayer can show that the deposits are not taxable or were previously

reported. DiLeo, 96 T.C. at 868; Brodsky v. Commissioner, T.C. Memo.

2001-240, 82 T.C.M. (CCH) 505, 530. However, the Commissioner must

account for any nontaxable source or deductible expense of which he has

knowledge. DiLeo, 96 T.C. at 868; Brodsky, 82 T.C.M. (CCH) at 530.

Here, the Commissioner calculated deposits, determined that

some were nontaxable or already included in income, and allowed

deductions. To support the analysis, the Commissioner produced bank

records, canceled checks, and withdrawal and deposit slips cross-

referencing Mr. Di Giorgio’s bank accounts. Further, the Commissioner

proved likely sources of the income, including Radius CA, Radius FL,

real estate sales, and stock trading, among others. The Commissioner’s

analysis is well supported, and we accept the reconstruction of income

and expenses as reasonable and accurate.

17

[*17] B. Mr. Di Giorgio’s Arguments

Mr. Di Giorgio argues that the Commissioner’s reconstruction is

excessive for various reasons.

1. Nontaxable Sources

The Commissioner accounted for nontaxable deposits, but Mr.

Di Giorgio argues additional amounts are nontaxable. He argues that

nontaxable sources include double-counted life insurance proceeds, loan

principal, transfers, and deposits taxable to third parties. He cites no

documentary evidence in the record to support his argument. He

received $1,008,039 of life insurance proceeds in 2006, but that amount

is less than the amount the Commissioner has already determined to be

nontaxable for that year. Because Mr. Di Giorgio did not establish any

nontaxable sources in excess of what the Commissioner already allowed,

he did not meet his burden. See Hradesky v. Commissioner, 65 T.C. 87,

89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976).

2. Real Estate Sales (Schedule C)

Mr. Di Giorgio argues that the Commissioner’s determinations of

income from real estate sales for 2005 and 2006 are excessive. In the

notices of deficiency, the Commissioner determined net gain from both

reported and unreported sales. Through subsequent stipulations, the

Commissioner agreed to reduce the amounts of gain to $373,836 and

$252,853 for 2005 and 2006, respectively. Mr. Di Giorgio argues that

these reduced amounts are not low enough.

First, Mr. Di Giorgio asserts that he had real estate partners to

whom some of the gain must be allocated. He generally testified that his

nephews and Ms. Russell were his partners, but he cites only one

document in the record to support his assertion. Specifically, he claims

that a check “payable to [Ms.] Russell . . . clearly show[s]” that she was

his partner. Setting aside the fact that the check was payable to Mr.

Di Giorgio (from Ms. Russell), it does not establish a partnership. Other

than Mr. Di Giorgio’s testimony, which was not credible, there is no

evidence he had any partners in selling real estate. He did not meet his

burden.

Mr. Di Giorgio further asserts that he incurred deductible

business expenses. In the notices of deficiency, the Commissioner

disallowed vehicle, depreciation, and various other expenses for 2005,

18

[*18] and vehicle and various other expenses for 2006 (all of which are

in dispute).

In his brief, Mr. Di Giorgio argues that he may deduct vehicle

expenses and depreciation. He generally testified that he had vehicle

expenses during 2005 and 2006 but cites no documentary evidence of

those expenses in the record. Vehicle expenses require strict

substantiation, and his testimony was insufficient to meet this

standard. See I.R.C. §§ 274(d), 280F(d)(4); Shah v. Commissioner, T.C.

Memo. 2015-31, at *18–19. Otherwise, he offered no documentary

evidence as to the remaining expenses. We uphold the Commissioner’s

determination.

3. Rental Real Estate Activities (Schedule E)

Mr. Di Giorgio argues that he is entitled to losses from real estate

activities. Each year, Mr. Di Giorgio reported expenses far greater than

his rental income and deducted the losses against nonpassive income.

The amounts at issue are $85,673, $45,567, and $32,689 for 2005, 2006,

and 2007, respectively. Mr. Di Giorgio argues that he was “at all times

. . . a license[d] real estate broker [who] personally managed his

properties and [is] entitled to claim [nonpassive] losses.”

Section 162(a) generally allows a deduction for ordinary and

necessary trade or business expenses, while section 469(a)(1)(A) and (b)

disallows a deduction for “passive activity loss.” Section 469(c)(2) treats

all rental activity as passive, but section 469(c)(7)(A)(i) carves out an

exception for rental activities of taxpayers who are “real estate

professionals.” See Sezonov, T.C. Memo. 2022-40, at *4. To qualify as a

real estate professional, the taxpayer generally must perform at least

750 hours of services in a real property trade or business in which he

“materially participates,” among other requirements. I.R.C.

§ 469(c)(7)(B); Sezonov, T.C. Memo. 2022-40, at *4–5.

We need not address the question of whether Mr. Di Giorgio’s

losses are passive if he failed to establish that his rental real estate

activities generated a loss. To do so, Mr. Di Giorgio must establish that

he incurred deductible expenses under section 162. Mr. Di Giorgio did

not specifically testify about expenses he incurred in connection with his

reported rental properties, and he cites no documentary evidence of the

reported expenses. Further, he did not provide any evidence from which

the Court could make a reasonable estimate of his expenses. See Cohan

v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930); Mileham v.

19

[*19] Commissioner, T.C. Memo. 2017-168, at *36. Thus, he has not

shown that he incurred deductible expenses. Because he did not meet

his burden regarding expenses, we need not reach the question of

whether he was a real estate professional. We note, however, that Mr.

Di Giorgio did not offer any evidence of the number of hours he served

in a real property trade or business.

4. Radius CA – Schedules E

Mr. Di Giorgio disputes the Commissioner’s determination of his

distributive share of ordinary income from the S corporation Radius CA

for 2005 and 2006. The parties agree that Mr. Di Giorgio owned a 50%

interest in Radius CA for the first 341 days of 2005 and 100% for the

remaining 24 days, after his first wife passed away. He was the sole

owner in 2006.

S corporations are passthrough entities, which generally are not

subject to income tax. I.R.C. § 1366(a); see Tribune Media Co. v.

Commissioner, T.C. Memo. 2021-122, at *40–41. Rather, section

1366(a)(1) provides that an S corporation’s income, losses, deductions,

and credits are passed through to its shareholders. An S corporation

shareholder must take the S corporation’s income into account on his or

her individual income tax return regardless of whether any income is

distributed. See Alt. Health Care Advocs. v. Commissioner, 151 T.C. 225,

240 (2018). In determining income to Radius CA, the Commissioner took

into account deposits to Radius CA’s bank accounts and reduced them

by any deposits from nontaxable sources. Mr. Di Giorgio did not

establish any additional nontaxable sources or establish that he did not

have an interest in Radius CA.

Mr. Di Giorgio also argues that the Commissioner failed to take

into account Radius CA’s expenses (e.g., payroll, commissions, and bad

debts). For the first time on brief, he also argues that the SEC’s

judgment against him is an enforceable debt that is deductible for the

year he incurred it. Mr. Di Giorgio’s arguments are unsupported by the

record.

First, the record shows that the Commissioner either allowed in

the notices of deficiency or agreed to by stipulation various expenses,

including salaries, wages, and commissions, among others. Mr.

Di Giorgio failed to prove that Radius CA incurred deductible expenses

beyond those amounts already allowed or agreed upon. See Hradesky,

65 T.C. at 89–90. His generalized testimony was not credible, and in his

20

[*20] brief, he refers to only one document evidencing a commission

payment. Mr. Di Giorgio did not cite where that document might be

located in the record, and the Court was unable to independently locate

it.

Second, as for any payment he may have made to the SEC, there

is no evidence in the record that Mr. Di Giorgio paid any outstanding

judgment. See I.R.C. § 162(a), (f); Ziroli v. Commissioner, T.C. Memo.

2022-75, at *7–9. Indeed, the judgment did not arise until 2015, after

the years in issue.

5. Dividends

Mr. Di Giorgio does not appear to dispute his receipt of dividend

income, but he argues that he “should not be rule[d] to have received

unreported dividends especially with regard to [CRNT stock]” for which

he had a capital loss. His argument is without merit. The Commissioner

produced Scottrade records showing payment of dividends, and Mr.

Di Giorgio failed to establish any error in the Commissioner’s

determination.

6. Retirement Account Distributions

In his petition, Mr. Di Giorgio disputed the Commissioner’s

determination of distributions from retirement accounts. For 2007, the

Commissioner determined taxable distributions of $88,780 and

additional tax of $8,878 pursuant to section 72(t), which imposes a 10%

tax on early distributions from qualified retirement plans that are

includible in gross income. Mr. Di Giorgio alleged that some of the

distributions were from his first wife’s retirement plan and were a

nontaxable inheritance. He did not mention the distributions at trial or

in his brief. To the extent that he argued the determination was

erroneous, we treat him as having abandoned that argument. See Rule

151(e)(4) and (5); Petzoldt, 92 T.C. at 683. Further, the record shows that

the premature distributions came from Mr. Di Giorgio’s retirement plan,

not his first wife’s.

The distributions are subject to the additional tax under section

72(t). Section 72(t)(2) provides certain exceptions from this additional

tax, but Mr. Di Giorgio neither argued nor established that any

exception applies.

21

[*21] C. Itemized Deductions

Mr. Di Giorgio argues that he is “entitled to claimed itemized

deductions” for 2005 through 2007. The Commissioner disallowed

deductions for medical and dental expenses, real estate taxes, personal

property taxes, and home mortgage interest. Mr. Di Giorgio put on no

evidence of those expenses at trial. Because he bears the burden of proof

on this issue, his failure precludes him from prevailing. See Nitschke v.

Commissioner, T.C. Memo. 2016-78, at *4–5, *9; Miller v. Commissioner,

T.C. Memo. 2014-105, at *11–13.

D. Dependency Exemptions

Mr. Di Giorgio argues that he should be permitted to claim Ms.

Di Giorgio’s children as dependents for 2006 for purposes of section

151(c). The parties agree Mr. Di Giorgio’s correct filing status was

qualifying widower, that the children were nonresident aliens, and that

he had not adopted them as of December 31, 2006. However, he argues

that the children qualify as dependents because he supported them and

they lived with him for more than six months during 2006.

Section 152(b)(3)(A) provides that a “dependent” does not include

certain nonresident aliens. Section 152(b)(3)(B) provides an exception

for nonresident alien children who have been adopted by the taxpayer.

See I.R.C. § 152(f)(1)(B). As of the end of 2006, Ms. Di Giorgio’s children

were nonresident aliens, and Mr. Di Giorgio had not adopted them. Mr.

Di Giorgio is not entitled to the claimed dependency exemptions.

III. Additions to Tax and Penalties

A. Burden of Proof and Production

The Commissioner determined additions to tax under section

6651(a)(1) and fraud penalties under section 6663. 3 The Commissioner

bears the burden of production with respect to additions to tax and

penalties and must produce evidence that they are appropriate. See

I.R.C. § 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446–47 (2001).

For section 6663 fraud penalties, however, the Commissioner must

3 The Commissioner determined penalties under section 6662 as an

alternative. We need not reach this issue because we conclude that section 6663

applies. See Treas. Reg. § 1.6662-2(c) (explaining that where more than one penalty

could apply to a portion of an underpayment, penalties do not stack, and only the

maximum potentially applicable penalty applies).

22

[*22] prove fraud by clear and convincing evidence. Rule 142(b); see

I.R.C. § 7454(a); Castillo v. Commissioner, 84 T.C. 405, 408 (1985). Such

a showing would generally shift the burden to the Di Giorgios to come

forward with persuasive evidence that the determination is incorrect or

that they had reasonable cause. See Higbee, 116 T.C. at 447. Where

applicable, the Commissioner must produce evidence of managerial

penalty approval under section 6751(b)(1). See Walquist v.

Commissioner, 152 T.C. 61, 68 (2019).

B. Penalty Approval

Section 6751(b)(1) generally requires managerial approval of

certain penalties before assessment, including section 6663 penalties. 4

Thus, the Commissioner must produce evidence of compliance with

section 6751(b)(1), which provides that that no penalty shall be assessed

unless the initial determination of the penalties is approved (in writing)

by the immediate supervisor of the person who made that

determination. An “initial determination” occurs the earlier of when the

Commissioner issues a notice of deficiency or formally communicates a

decision to determine penalties. Belair Woods, LLC v. Commissioner,

154 T.C. 1, 14–15 (2020); Clay v. Commissioner, 152 T.C. 223, 248–49

(2019), aff’d, 990 F.3d 1296 (11th Cir. 2021).

An appeal of these cases would lie with the Eleventh Circuit,

which has held that approval at any time before assessment satisfies the

statute. See Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir.

2022), rev’g in part T.C. Memo. 2020-73. We follow clearly established

law of the circuit in which a case before us is appealable. Golsen v.

Commissioner, 54 T.C. 742, 756–58 (1970), aff’d, 445 F.2d 985 (10th Cir.

1971). Thus, we follow Kroner here. The Commissioner satisfied

Kroner’s standard because the penalties have been approved and have

not yet been assessed.

Even under our more stringent precedent, however, section

6751(b)(1) is satisfied. See Clay, 152 T.C. 223. The revenue agent

proposed section 6663 penalties in examination reports that were

mailed to the Di Giorgios (on June 15, 2011) with 30-day letters signed

by the revenue agent’s immediate supervisor. In Clay, we held that an

examination report that is attached to a 30-day letter and proposes

section 6663 penalties can embody the initial determination. Id. at 249.

4 Section 6751(b)(2) provides that the general rule of section 6751(b)(1) does

not apply to any addition to tax under section 6651.

23

[*23] Where the relevant supervisor has signed such a 30-day letter,

section 6751(b)(1) is satisfied. See Belanger v. Commissioner, T.C.

Memo. 2020-130, at *27–28; see also TOT Prop. Holdings, LLC v.

Commissioner, 1 F.4th 1354, 1373–74 (11th Cir. 2021). The letters were

mailed on June 15, 2011, before the notices of deficiency, so they satisfy

section 6751(b)(1).

C. Section 6651(a)(1)

Section 6651(a)(1) imposes an addition to tax for failure to file a

return on or before the due date (including extensions) unless the

taxpayer can establish that such failure was “due to reasonable cause

and not due to willful neglect.” To demonstrate reasonable cause, a

taxpayer must show that he exercised ordinary business care and

prudence but was nevertheless unable to file on time. United States v.

Boyle, 469 U.S. 241, 246 (1985); Treas. Reg. § 301.6651-1(c)(1).

The Commissioner produced evidence of late filing, which Mr.

Di Giorgio does not dispute. Despite placing the additions to tax at issue,

Mr. Di Giorgio does not argue on brief that his late filing was due to

reasonable cause and not willful neglect. At trial, he testified that he

had a difficult time when his wife died, saying that he was a “vegetable”

and “wasn’t able to handle [his] business affairs.” However, he was able

to arrange international travel in the weeks immediately following his

first wife’s death, and he continued operating Radius CA. Although the

death of a taxpayer’s immediate family member may constitute

reasonable cause in certain circumstances, a taxpayer’s selective

inability to meet his tax obligations when he can otherwise carry on

normal activities does not excuse late filing. Boyle, 469 U.S. at 243 n.1;

Wilkinson v. Commissioner, T.C. Memo. 1997-410, 74 T.C.M. (CCH) 566,

571. The record does not support a finding that Mr. Di Giorgio acted

with reasonable cause and not willful neglect. See Rule 151(e)(4) and (5);

Petzoldt, 92 T.C. at 683.

D. Section 6663

Section 6663 imposes a penalty of 75% of an underpayment of tax

if any part of the underpayment is due to fraud. Once the Commissioner

establishes that part of an underpayment is due to fraud, the entire

underpayment is treated as attributable to fraud, except to the extent

the taxpayer establishes otherwise. I.R.C. § 6663(b). The existence of

fraud is a factual question to be resolved by considering the entire

record. See DiLeo, 96 T.C. at 874. The Commissioner must prove two

24

[*24] elements of fraud by clear and convincing evidence: (1) an

underpayment of tax and (2) fraudulent intent. Castillo, 84 T.C.

at 408–09. The Commissioner’s burden applies separately for each of the

years in issue. Id. at 409; see I.R.C. § 7454(a); Rule 142(b).

An underpayment is the amount by which the tax imposed by

Title 26 exceeds the amounts shown as the tax by the taxpayer on his

return. I.R.C. § 6664(a). The Commissioner established by clear and

convincing evidence that Mr. Di Giorgio reported less tax than he owed

for each year in issue, resulting in underpayments.

We can infer fraudulent intent from circumstantial evidence, the

weight of which may vary depending on the taxpayer’s sophistication.

See Clark, T.C. Memo. 2021-114, at *36–37. Mr. Di Giorgio was a

sophisticated businessman. He sold houses, ran a mortgage-lending

business, and sold mortgage-backed securities. He had employees and

agents and dealt with banks, title companies, homebuyers, and the

federal government.

Various “badges of fraud” may indicate fraudulent intent.

Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992); Clark, T.C.

Memo. 2021-114, at *37. The existence of any one badge is not

dispositive, but multiple badges together are strong circumstantial

evidence of fraudulent intent. Niedringhaus, 99 T.C. at 211. Badges of

fraud include, but are not limited to: (1) failing to file tax returns,

(2) underreporting income, (3) keeping inadequate records, (4) giving

implausible or inconsistent explanations of behavior, (5) failing to

cooperate with tax authorities, (6) concealing income or assets,

(7) engaging in illegal activities, (8) demonstrating a lack of credibility,

(9) filing false documents (including false tax returns), and (10) dealing

in cash. See, e.g., id.; Kohan v. Commissioner, T.C. Memo. 2019-85,

at *17–18.

1. Failing to File Returns

Mr. Di Giorgio failed to file a corporate income tax return for

Radius CA for 2006 or 2007, and the Commissioner argues that his

failure supplies evidence of fraudulent intent. Despite that failure, Mr.

Di Giorgio reported losses flowing from Radius CA on his individual

income tax return for 2006 and included an employer identification

number for Radius CA. Furthermore, he filed individual income tax

returns for 2005 through 2007. This badge is neutral.

25

[*25] 2. Underreporting Income

A pattern of substantially underreporting income over several

successive years can be strong evidence of fraudulent intent. See

Zhadanov v. Commissioner, T.C. Memo. 2002-104, 83 T.C.M. (CCH)

1553, 1560. Such a pattern evinces fraudulent intent “even where the

record is ‘devoid of the usual indicia of fraud.’” Isaacson v.

Commissioner, T.C. Memo. 2020-17, at *48–49 (quoting Otsuki v.

Commissioner, 53 T.C. 96, 107–08 (1969)), aff’d, 129 A.F.T.R.2d 2022-

797 (9th Cir. 2022). Mr. Di Giorgio underreported his income for all

three years in issue by millions. This badge provides strong evidence of

fraudulent intent for each year.

3. Maintaining Inadequate Records

Taxpayers must maintain records sufficient to determine their

tax liability, and a failure to do so can indicate fraudulent intent. I.R.C.

§ 6001; Bradford v. Commissioner, 796 F.2d 303, 307–08 (9th Cir. 1986),

aff’g T.C. Memo. 1984-601. Mr. Di Giorgio failed to produce adequate

books and records for any of his activities, and the Commissioner had to

resort to a bank deposits analysis. This can be evidence of fraudulent

intent. See Purvis v. Commissioner, T.C. Memo. 2020-13, at *38. Mr.

Di Giorgio also failed to produce business records or substantiation to

the Commissioner or the Court, and his explanations regarding his

records (or lack thereof) were not credible. Considering Mr. Di Giorgio’s

sophistication, we infer that he did not maintain the required records or

that any records he maintained would have been unfavorable to his

claims. See Evans v. Commissioner, T.C. Memo. 2010-199, 100 T.C.M.

(CCH) 215, 219, aff’d, 507 F. App’x 645 (9th Cir. 2013). This badge

provides evidence of fraudulent intent for each year in issue.

4. Implausible or Inconsistent Explanations

A taxpayer’s implausible or inconsistent explanations for his

actions may constitute evidence of fraudulent intent. See Bradford v.

Commissioner, 796 F.2d at 307. We may consider a taxpayer’s filings

and testimony as evidence of implausible or inconsistent explanations.

See Goldston v. Commissioner, T.C. Memo. 2011-9, 101 T.C.M. (CCH)

1026, 1028.

Mr. Di Giorgio offered implausible and inconsistent testimony.

His testimony about his lifestyle during the years in issue was

inconsistent with the documentary record and Ms. Di Giorgio’s

testimony. His testimony about the Russell statement, which allegedly

26

[*26] pertains to a 2005 income item, was internally inconsistent and

inconsistent with his argument on brief. His testimony regarding vehicle

expenses was inconsistent with Ms. Di Giorgio’s testimony. His

argument on brief that he relied on a certified public accountant in 2005

is inconsistent with his testimony that he did not use an accountant

during the years in issue, and it is inconsistent with the returns

themselves, which all indicate he prepared them himself. This badge

supplies evidence of fraud for each year in issue.

5. Failing to Cooperate with Tax Authorities

A taxpayer’s failure to cooperate with tax authorities, including

his failure to cooperate with revenue agents during an examination, can

indicate fraudulent intent. Grosshandler v. Commissioner, 75 T.C. 1,

19–20 (1980). “[M]isleading statements during an audit, even from an

unsophisticated taxpayer, may indicate fraudulent intent.” Clark, T.C.

Memo. 2021-114, at *37.

Mr. Di Giorgio failed to cooperate with tax authorities. He missed

meetings with the revenue agent and made it difficult to contact him.

He generally failed to provide requested documents and provided

unreliable and false documents to substantiate his income and expenses.

See Le v. Commissioner, T.C. Memo. 2020-27, at *35–36; Energy Rsch.

& Generation, Inc. v. Commissioner, T.C. Memo. 2011-45, 101 T.C.M.

(CCH) 1205, 1216–17. He informed the Commissioner of only one bank

account and a few property sales, whereas the Commissioner found

many more through summonses. See Curtis v. Commissioner, T.C.

Memo. 2013-12, at *15–16, aff’d, 648 F. App’x 689 (9th Cir. 2016)

(finding refusal to cooperate such that the Commissioner had to

summon banks and title companies to obtain information was a badge

of fraud). This badge provides evidence of fraudulent intent for each year

in issue.

6. Concealing Income

If a taxpayer conceals his ownership of assets or covers up sources

of income, such concealment supports a finding of fraud. Spies v. United

States, 317 U.S. 492, 499 (1943). A taxpayer may conceal his income by

revealing some bank accounts but not others during an audit or by using

business bank accounts to pay personal living expenses. Hovind v.

Commissioner, T.C. Memo. 2012-281, at *51–52; Energy Rsch. &

Generation, Inc., 101 T.C.M. (CCH) at 1216; see Vanover v.

Commissioner, T.C. Memo. 2012-79, 103 T.C.M. (CCH) 1418, 1422–23.

27

[*27] Mr. Di Giorgio concealed income. He failed to disclose all but one

of his bank accounts. He used Radius CA’s bank accounts to pay

personal expenses, but Radius CA did not report paying him wages or

issue him Forms 1099, and he did not report all the income he received

from Radius CA on his returns. Meanwhile, he offset Radius CA’s

income for 2005 with erroneous deductions and reported a Schedule E

loss for 2006 without filing Form 1120S or otherwise documenting

Radius CA’s income and expenses. See Purvis, T.C. Memo. 2020-13,

at *40–41 (finding this badge favored a finding of fraud where taxpayers

used their business to pay personal expenses such as mortgages, car

loans, and personal credit cards, but the business did not issue Forms

W–2 or Forms 1099, and they did not report those amounts as income,

so they concealed its receipt). For each year in issue, he omitted

substantial income from Radius FL, which issued him a Form W–2 but

was not part of the examination. He attempted to conceal Radius FL as

a source of income by attaching a substitute Form W–2 to his return and

listing himself as his employer instead of Radius FL. This was a

deliberate attempt to conceal income, which provides evidence of fraud.

This badge supplies evidence of fraud for each year in issue.

7. Engaging in Illegal Activities

Engaging in illegal activities, even if the taxpayer is not charged

with a crime, is circumstantial evidence of fraud. Niedringhaus, 99 T.C.

at 211; Hovind, T.C. Memo. 2012-281, at *54–55. Mr. Di Giorgio and

Radius CA earned income in 2005 and 2006 by violating securities laws.

See Meier v. Commissioner, 91 T.C. 273, 302–03 (1988) (finding “lack of

potential for criminal punishment or penalty” was “a distinction without

a difference” where a taxpayer reaped ill-gotten gains by breaching

fiduciary duties to his employer, but no criminal charges were filed).

They obtained profits of at least $1,427,095 through fraud. Mr.

Di Giorgio failed to report at least some of those profits; in 2006, he

failed to file a corporate return for Radius CA and reported a net loss

from Radius CA on his Form 1040. Thus, he failed to report income

earned through illegal, fraudulent activities. This badge provides

evidence of fraudulent intent for 2005 and 2006.

8. Lack of Credibility

Mr. Di Giorgio’s testimony was not credible. It was inconsistent

with other witnesses’ testimony and the documentary record. We have

addressed myriad inconsistencies. The contrast between his actual

lifestyle and the lifestyle he claimed to lead particularly discredits him

28

[*28] given the weight of evidence. This badge provides evidence of

fraudulent intent for each year in issue.

9. Filing False Documents

Filing false documents indicates a taxpayer’s intent to evade

income tax. See Harrington v. Commissioner, T.C. Memo. 2021-95,

at *40, aff’d, No. 22-9000, 2022 WL 17333080 (10th Cir. Nov. 30, 2022).

That includes filing a return that omits income or contains a false

response. See id. at *39–40. Mr. Di Giorgio filed false returns for each

year in issue. All the returns at issue omitted substantial income.

Moreover, he reported rental real estate losses on property that was

used by family for personal purposes. He also submitted false documents

during the examination, including fabricated invoices for expenses and

a fabricated statement as to ownership of an entity. This badge supplies

evidence of fraudulent intent for each year in issue.

10. Conclusion as to Fraud Penalty

For each year in issue, the Commissioner established by clear and

convincing evidence that Mr. Di Giorgio underpaid his taxes and that

those underpayments were due to fraud. The section 6663 penalty

applies.

IV. Innocent Spouse Relief

Finally, we address whether Ms. Di Giorgio is entitled to innocent

spouse relief under section 6015 for 2007. The Commissioner concedes

that Ms. Di Giorgio is entitled to relief under section 6015(f). On brief,

the Commissioner more specifically concedes that Ms. Di Giorgio is

entitled to relief because “[w]hen she signed the 2007 individual income

tax return, she lacked the sophistication to have reason to know of the

understatements at issue in this case, it would be an undue financial

hardship for her to be denied relief, and denying her relief would be

inequitable given her circumstances.” Mr. Di Giorgio opposes relief.

A. General Rules

Generally, married taxpayers may elect to file a joint federal

income tax return. I.R.C. § 6013(a). Upon electing to file jointly, each

spouse is jointly and severally liable for the entire tax due for that year.

I.R.C. § 6013(d)(3). In certain circumstances, however, a spouse who

filed a joint return may seek relief from joint and several liability under

the procedures in section 6015. I.R.C. § 6015(a). Section 6015(a) allows

29

[*29] a spouse to seek relief from joint and several liability under

subsection (b) or, if eligible, to allocate the liability according to

subsection (c). If a taxpayer does not qualify for relief under subsection

(b) or (c), the taxpayer may be eligible for equitable relief under

subsection (f).

The taxpayer generally bears the burden of proving that he or she

is entitled to section 6015 relief. Rule 142(a); Alt v. Commissioner, 119

T.C. 306, 311 (2002), aff’d, 101 F. App’x 34 (6th Cir. 2004). However, if

the Commissioner concedes that the taxpayer is entitled to relief and

the nonrequesting spouse opposes relief, it is an open question of

whether the burden shifts to the nonrequesting spouse. See Stergios v.

Commissioner, T.C. Memo. 2009-15, 97 T.C.M. (CCH) 1057, 1059.

Because the evidence clearly weighs in favor of relief, we do not need to

decide who bears the burden. See id. The scope and standard of our

review in cases involving relief from joint and several income tax

liability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009).

B. Section 6015(b)

Section 6015(b)(1) provides that a requesting spouse is entitled to

relief if all five of the following requirements are satisfied: (A) a joint

return was filed for the taxable year; (B) there was an understatement

of tax attributable to an erroneous item of the nonrequesting spouse;

(C) at the time of signing the return, the requesting spouse did not know

and did not have reason to know of the understatement; (D) taking into

account all the facts and circumstances, it is inequitable to hold the

requesting spouse liable for the deficiency in tax attributable to the

understatement; and (E) the requesting spouse sought relief within two

years of the first collection activity relating to the liability. Alt, 119 T.C.

at 313.

Three requirements are clearly satisfied. The Di Giorgios filed a

joint return, the understatement is attributable to erroneous items of

Mr. Di Giorgio, and because the Commissioner has not commenced

collection action, Ms. Di Giorgio’s request was timely. Thus, she will

qualify for relief if she satisfies section 6015(b)(1)(C) (knowledge

requirement) and section 6015(b)(1)(D) (inequity requirement). We look

at cases interpreting former section 6013(e)(1) when analyzing parallel

provisions of section 6015. See Korchak v. Commissioner, T.C. Memo.

2006-185, 92 T.C.M. (CCH) 199, 213. The requirements in section

6015(b)(1)(C) and (D) are “virtually identical to” the requirements of

former section 6013(e)(1)(C) and (D), so cases analyzing the latter are

30

[*30] instructive here. Crouse v. Commissioner, T.C. Memo. 2011-97,

101 T.C.M. (CCH) 1456, 1468; Doyel v. Commissioner, T.C. Memo. 2004-

35, 87 T.C.M. (CCH) 960, 965.

1. Knowledge Requirement

Ms. Di Giorgio must have lacked actual or constructive knowledge

of the understatement when she signed the 2007 return. The main

contributors to the understatement were unreported income (including

retirement account distributions, dividends, and $1,409,068 of general

unreported income), disallowed itemized deductions totaling $51,532,

and disallowed losses from Schedule E rental real estate activities

totaling $36,939. We analyze Ms. Di Giorgio’s knowledge of these items.

a. Actual Knowledge

The regulations define actual knowledge. Treas. Reg. § 1.6015-

3(c). Actual knowledge of omitted income means knowledge that the

amount of income was received. Treas. Reg. § 1.6015-3(c)(2)(i)(A), (ii), (4)

(example 4). Actual knowledge of erroneous deductions or credits

generally means knowledge of the facts that made the item not

allowable. Id. subdiv. (i)(B)(1). If the deduction was fictitious or inflated,

actual knowledge means knowledge that the expenditure was not

incurred or not incurred to the extent reported. Id. subdiv. (i)(B)(2).

Knowledge of an erroneous item’s source alone is insufficient. Treas.

Reg. § 1.6015-3(c)(2)(iii).

Ms. Di Giorgio did not know of the unreported income and

erroneous deductions. She did not have access to the accounts included

in the bank deposits analysis, and there is no evidence that she knew

about the unreported income that was deposited in them. All she knew

about Mr. Di Giorgio’s business was that he sold houses. Radius CA only

sold one house in 2007 (to Mr. Di Giorgio), and Ms. Di Giorgio did not

know whether Mr. Di Giorgio or Radius CA owned the home during the

years in issue. Even though her name was used to sign the corporate

warranty deed, she did not recognize her signature or know what the

document was. Mr. Di Giorgio deposited the proceeds from the sale, most

of which he borrowed, in his separate bank account.

b. Constructive Knowledge

A requesting spouse has constructive knowledge of an

understatement if a reasonably prudent taxpayer in her position at the

time she signed the return could be expected to know that (1) the tax

31

[*31] liability stated was erroneous or (2) that further inquiry was

warranted. Kistner v. Commissioner, 18 F.3d 1521, 1525 (11th Cir. 1994)

(citing Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989),

aff’g T.C. Memo. 1988-63), rev’g T.C. Memo. 1991-463; Hopkins v.

Commissioner, 121 T.C. 73, 77–78 (2003); Treas. Reg. § 1.6015-2(c). A

“duty of inquiry” arises where the circumstances put the requesting

spouse on notice of the possibility of an understatement. Jacobsen v.

Commissioner, T.C. Memo. 2018-115, at *14, aff’d, 950 F.3d 414 (7th Cir.

2020). The requesting spouse has constructive knowledge where the

duty is triggered but not discharged. Id. at *14–15. We generally apply

the same circumstantial test to determine whether the requesting

spouse had a reason to know or duty to inquire (which are both forms of

constructive knowledge). Kistner v. Commissioner, 18 F.3d at 1525;

Jacobsen, T.C. Memo. 2018-115, at *15.

Whether a requesting spouse has constructive knowledge is a

subjective test and depends on the circumstances. See Podlucky v.

Commissioner, T.C. Memo. 2022-45, at *25; Treas. Reg. § 1.6015-2(c).

We consider the following factors: (1) the requesting spouse’s level of

education; (2) the requesting spouse’s involvement in the family’s

business and financial affairs; (3) the presence of expenditures that

appear lavish or unusual when compared to the family’s past standard

of living; and (4) the nonrequesting spouse’s evasiveness and deceit

about the family’s finances. Stevens, 872 F.2d at 1505. 5

i. Level of Education

Ms. Di Giorgio had a high school education and completed some

college nursing courses in the Philippines. From her testimony at trial,

nearly 15 years after the years in issue, it was evident that English is

not her first language. She had no business or accounting background.

See Taft, T.C. Memo. 2017-66, at *7 (deciding this factor in favor of a

taxpayer with a degree in nursing but no business background). We have

frequently decided this factor in favor of taxpayers who lack education

in business, accounting, or tax, even if the taxpayer is highly educated.

5 Stevens predated section 6015(b), but we continued applying Stevens after

section 6015(b) and regulations thereunder were enacted. See, e.g., Taft v.

Commissioner, T.C. Memo. 2017-66, at *6–9. The regulations identify six nonexclusive

factors that are relevant to the constructive knowledge inquiry that largely overlap

with the factors laid out in Stevens. See Jacobson, T.C. Memo. 2018-115, at *16; Treas.

Reg. § 1.6015-2(c).

32

[*32] Wang v. Commissioner, T.C. Memo. 2014-206, at *20. This factor

weighs in Ms. Di Giorgio’s favor.

ii. Involvement in Business and Financial

Affairs

Ms. Di Giorgio’s involvement in the family’s business and

financial affairs was limited. She did not work in 2007 and knew little

about Mr. Di Giorgio’s business activities. They did not share accounts,

and Mr. Di Giorgio gave her money as needed. She was not primarily

responsible for making financial decisions or managing household

expenses. She played no role in preparing the 2007 return and had never

seen a U.S. tax return before the year she signed it. We have decided

this factor in favor of taxpayers who were more involved than Ms.

Di Giorgio. See, e.g., Juell v. Commissioner, T.C. Memo. 2007-219, 94

T.C.M. (CCH) 143, 147–48 (finding involvement limited to paying

routine bills out of joint account); Hinds v. Commissioner, T.C. Memo.

1988-426, 56 T.C.M. (CCH) 104, 106 (finding extent of involvement was

accepting money from the nonrequesting spouse to pay household

expenses and purchase food and clothing). This factor weighs in her

favor.

iii. Lavish Expenditures

Ms. Di Giorgio acknowledges that her standard of living improved

because of her relationship with Mr. Di Giorgio. 6 However, the relevant

question is whether any of their expenditures in 2007 were lavish or

unusual compared to their past spending habits. See Hinds, 56 T.C.M.

(CCH) at 106 (deciding this factor in favor of a taxpayer who consistently

lived an affluent lifestyle throughout her marriage). In addressing this

question, we bear in mind that Ms. Di Giorgio’s frame of reference is

quite short. She met Mr. Di Giorgio in person in January 2006, moved

in with him in July 2006, and married him in September 2006. During

that time, he received over $1 million of nontaxable life insurance

proceeds from the recent death of his first wife. From 2006 to 2007, their

standard of living did not fluctuate. No expenditures were lavish in

comparison to her prior experience with Mr. Di Giorgio. This factor

weighs in her favor.

6 Mr. Di Giorgio argues that we should take her testimony about their lifestyle

with a grain of salt “given just one year earlier she lived in a third world country

without reliable electric or running water.”

33

[*33] iv. Mr. Di Giorgio’s Evasiveness and Deceit

Mr. Di Giorgio was evasive and deceptive. He was not forthright

with Ms. Di Giorgio about his legal issues, and during the years in issue,

Ms. Di Giorgio was unaware of them. When he gave her the signature

page of the return, he refused to tell her what it was and belittled her

by telling her she would not understand. She was genuinely naive and

trusted her husband, but she discovered that he did not have her best

interest in mind after the years in issue. This factor weighs in her favor.

v. Constructive Knowledge Conclusion

On the basis of the factors above, Ms. Di Giorgio could not be

expected to know that the tax liability stated on the return was

erroneous or that further investigation was warranted. Mr. Di Giorgio

gained her commitment and trust, then began mistreating her (verbally

and emotionally) when she left her home country to marry him. He was

controlling and evasive, but despite his behavior, she had no reason to

question him financially, because she believed he was successful and

was unaware of his legal problems. He pressured her into signing

returns without seeing them, but even if she had, it would have been

difficult for her to question him. She had no business or financial

background, little knowledge about the business, and no access to the

relevant financial records. Ms. Di Giorgio lacked constructive

knowledge.

2. Inequity Requirement

We consider all the facts and circumstances in determining

whether it is inequitable to hold a requesting spouse jointly and

severally liable. I.R.C. § 6015(b)(1)(D); see Treas. Reg. § 1.6015-2(d). We

consider factors utilized in determining “inequity” in the context of

section 6015(f). See Juell, 94 T.C.M. (CCH) at 148. For guidance, we may

look to, but are not bound by, Revenue Procedure 2013-34, 2013-43

I.R.B. 397. Parker v. Commissioner, T.C. Memo. 2022-110, at *5 (citing

Pullins v. Commissioner, 136 T.C. 432, 438–39 (2011)). The revenue

procedure outlines the following nonexclusive factors: (a) marital status;

(b) whether the requesting spouse will suffer economic hardship absent

relief; (c) whether the requesting spouse had actual or constructive

knowledge of the understatement; (d) whether either spouse had a legal

obligation to pay the liability; (e) whether the requesting spouse

significantly benefited from the understatement; (f) whether the

requesting spouse has made a good faith effort to comply with income

34

[*34] tax laws in years following the year of the understatement; and

(g) whether the requesting spouse was in poor physical or mental health

when the joint return was filed. Rev. Proc. 2013-34, § 4.03, 2013-43

I.R.B. at 400–03. We perform a balancing analysis of these factors below.

a. Marital Status

If the requesting spouse is no longer married to the nonrequesting

spouse, this factor weighs in favor of relief. Id. § 4.03(2)(a), 2013-34 I.R.B

at 400; see Hollimon v. Commissioner, T.C. Memo. 2015-157, at *10–11.

A requesting spouse is treated as “no longer married” if she is divorced

or legally separated from the nonrequesting spouse, or if she has not

been a member of the same household at any time during the 12-month

period preceding the determination. Rev. Proc. 2013-34, § 4.03(2)(a). Ms.

Di Giorgio has not been a member of the same household as Mr.

Di Giorgio, whom she is divorcing, since 2019. This factor weighs in favor

of relief.

b. Economic Hardship

If denying relief from the joint and several liability will cause the

requesting spouse to suffer economic hardship, this factor weighs in

favor of relief. The requesting spouse will suffer economic hardship if

paying all or part of the liability would render the requesting spouse

unable to pay reasonable basic living expenses. Id. § 4.03(2)(b), 2013-43

I.R.B. at 401. A relevant consideration in determining economic

hardship is the requesting spouse’s income compared to the federal

poverty level. See 42 U.S.C. § 9902(2). If the requesting spouse’s income

is below 250% of this amount, the factor weighs in favor of relief unless

she has assets from which she can pay the tax liability while still

meeting her basic living expenses. Rev. Proc. 2013-34, § 4.03(2)(b). At

the time of trial in 2021, 250% of the federal poverty level for a family of

three in Florida was $54,900 ($21,960 × 250%). See Annual Update of

the HHS Poverty Guidelines, 86 Fed. Reg. 7732, 7733 (Feb. 1, 2021).

Ms. Di Giorgio earns $15 per hour, but her hours fluctuate

depending on whether she is assigned to a client. At the time of trial,

she was not working because her client had recently died. However, Ms.

Di Giorgio has reported monthly income as high as $3,100, which when

annualized falls well below the federal poverty level. Further, she has

limited assets and significant liabilities, and her monthly reasonable

basic living expenses exceed her monthly income. Paying any part of the

35

[*35] 2007 liability would cause Ms. Di Giorgio to suffer significant

hardship. This factor weighs in favor of relief.

c. Knowledge or Reason to Know

If the requesting spouse had knowledge or reason to know about

the understatement in signing the return, this factor weighs against

relief. Actual knowledge under Revenue Procedure 2013-34 is the same

as under section 6015(b). See Freman v. Commissioner, T.C. Memo.

2023-10, at *26. Constructive knowledge essentially considers the same

facts and circumstances discussed above. See Rev. Proc. 2013-34,

§ 4.03(2)(c)(iii), 2013-43 I.R.B. at 402. Ms. Di Giorgio lacked actual or

constructive knowledge of the understatement when she signed the

return. This factor weighs in favor of relief.

d. Legal Obligation

If the nonrequesting spouse has the sole legal obligation to pay

the outstanding income tax liability pursuant to a divorce decree or

agreement, this factor weighs in favor of relief. If the spouses are not

separated or divorced, or the divorce decree or agreement is silent as to

such obligation, this factor is neutral. At the time of trial, neither spouse

had the sole legal obligation. This factor is neutral.

e. Significant Benefit

A “significant benefit” is any benefit exceeding normal support,

such as luxury assets and expensive vacations. Id. § 4.03(2)(e), 2013-43

I.R. B. at 402; see also Treas. Reg. § 1.6015-2(d). If the requesting spouse

significantly benefited from the omitted income, this factor weighs

against relief. Rev. Proc. 2013-34, § 4.03(2)(e); see also Treas. Reg.

§ 1.6015-2(d). If the nonrequesting spouse controlled the household and

business finances or there was abuse such that the nonrequesting

spouse made the decision on spending funds for a lavish lifestyle, then

this mitigates this factor so that it is neutral. See Rev. Proc. 2013-34,

§ 4.03(2)(e). According to Revenue Procedure 2013-34, § 4.03(2)(c)(iv),

2013-43 I.R.B. at 402, “[a]buse comes in many forms and can include

physical, psychological, sexual, or emotional abuse, including efforts to

control, isolate, humiliate, and intimidate the requesting spouse, or to

undermine the requesting spouse’s ability to reason independently and

be able to do what is required under the tax laws.”

Ms. Di Giorgio benefited from the understatement only to the

extent of the Di Giorgios’ shared lifestyle, and Mr. Di Giorgio completely

36

[*36] controlled family finances. He would have lived the same lifestyle

regardless of whether Ms. Di Giorgio was part of it, and Ms. Di Giorgio

reaped no individual benefit. This factor is neutral.

f. Compliance with Tax Laws

The requesting spouse’s good faith efforts to comply with income

tax laws in the years following the year to which her request relates

weigh in favor of relief. To the extent the requesting spouse continued

filing joint returns with the nonrequesting spouse, the factor is neutral.

There is no evidence in the record regarding Ms. Di Giorgio’s compliance

with tax laws after 2007, so this factor is neutral.

g. Physical and Mental Health

If the requesting spouse was physically or mentally ill when she

signed the joint return, this factor weighs in favor of relief. If not, this

factor is neutral. Ms. Di Giorgio did not have any mental or physical

health problems when she signed the returns, so this factor is neutral.

h. Inequity Conclusion

Of the factors above, three weigh in favor of relief, and four are

neutral. She lacked knowledge of Mr. Di Giorgio’s fraudulent reporting

and unreported income, she has been living apart from him since 2019

and is divorcing him, and paying the liabilities would be a significant

economic hardship for her. Given the circumstances, it would be

inequitable to deny her relief.

C. Conclusion as to Innocent Spouse Relief

Ms. Di Giorgio is entitled to innocent spouse relief for 2007

because she has demonstrated that she satisfies the requirements of

section 6015(b).

V. Conclusion

Mr. Di Giorgio failed to prove any error in any of the

Commissioner’s determinations beyond the concessions already made by

the Commissioner. The Commissioner proved by clear and convincing

evidence that those underpayments were attributable to fraud. Ms.

Di Giorgio is entitled to innocent spouse relief under section 6015 for

2007. Accordingly, Mr. Di Giorgio is solely liable for an income tax

37

[*37] deficiency, a section 6651(a)(1) addition to tax, and a section 6663

penalty for each year in issue.

To reflect the foregoing and the parties’ concessions,

Decisions will be entered under Rule 155.