IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax
SHELLEY ANN BRADSHAW, ) (aka Shelley Ann Martin), ) ) Plaintiff, ) TC-MD 180405R ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION
Plaintiff appealed Defendant’s Conference Decision Letter dated September 27, 2018, for
the 2014 tax year. A trial was held on June 11, 2019, in the courtroom of the Oregon Tax Court.
Shelley Ann Bradshaw (Bradshaw) appeared and testified on her own behalf. Plaintiff’s father,
John McCormack (McCormack), also testified for Plaintiff. Nelly Rudnitskaya, auditor for the
Department of Revenue, appeared and testified on behalf of Defendant. Plaintiff offered
Exhibits 1 to 7 without objection. Defendant offered Exhibits A to N without objection.
I. STATEMENT OF FACTS
Bradshaw testified that in 2014 she derived her income from a corporate employer and
from her own business called Beautiful BEBE Designs LLC (BEBE). She testified that BEBE
began as a virtual business making bedding for infant cribs in 2012 and by 2014 it grew into a
retail store. Bradshaw testified that most sales at the store were done by credit card and little
cash was received. Bradshaw maintained four bank accounts with Columbia Bank: personal
account 9862, personal account 8303, business account 6153, and joint account 1424. (Ptf’s
Exs 1-4.) Bradshaw testified that in late 2014 the store closed for financial reasons.
/// 1 DECISION TC-MD 180405R Bradshaw’s 2014 Oregon personal income tax was selected for audit by Defendant.
(Def’s Ex B at 1.) Rudnitskaya testified she performed a bank deposit analysis by totaling
Bradshaw’s bank deposits and sales reported from ETSY, PayPal, and Square, Inc. and then
subtracting duplicates, non-income deposits, and transfers. She concluded that Bradshaw had
additional unreported income of $62,623. (Def’s Exs N at 1; B at 7.)
Bradshaw testified that the bank deposit analysis mistakenly counted 26 deposits
($34,313) as unreported income. (Ptf’s Ex 7.) Bradshaw testified that those 26 deposits break
into six types of non-income credits: (1) deposits from transfers between bank accounts;
(2) deposits from the sale of her vehicle; (3) cash transfers into new bank accounts; (4) deposits
from short-term disability insurance; (5) deposits from loans; and (6) deposits into Bradshaw’s
ex-husband’s bank account. (Id.)
Bradshaw testified that the first category of deposits were same-day check transfers
between her bank accounts for cash flow reasons. Bradshaw presented bank records of six check
transfers between accounts totaling $8,305. (Ptf’s Ex 7.) On May 15, 2014, Bradshaw wrote a
check for $1,500 from personal account 9862 to business account 6153. (Ptf’s Exs 1 at 1; 3 at 3.)
On May 23, 2014, Bradshaw wrote a check for $2,000 from business account 6153 to personal
account 8303. (Def’s Exs F at 7; E at 15.) On September 2, 2014, Bradshaw wrote a check for
$1,6501 from personal account 9862 to business account 6153. (Ptf’s Exs 1 at 2; 3 at 5.) On
September 10, 2014, Bradshaw wrote a check for $2,200 from personal account 9862 to business
account 6153. (Ptf’s Exs 1 at 2; 3 at 5.) On September 26, 2014, Bradshaw wrote a check for
$600 from business account 6153 to personal account 9862. (Def’s Exs F at 20; D at 50.) On
1 There is a slight discrepancy in the amount transferred between accounts, but the court does not find that significant. 2 DECISION TC-MD 180405R December 4, 2014, Bradshaw wrote a check for $325 from business account 6153 to personal
account 9862. (Def’s Exs F at 33; D at 60.)
Bradshaw testified that the second category of deposits were payments received from the
sale of her used car. Bradshaw testified she sold her used vehicle to a friend for another car
worth $5,500 and approximately $17,000 on a payment plan at $329 per month. When
Bradshaw sold that vehicle, the adjusted basis was $38,379. (Def’s Ex A at 12.) Defendant
contends that those five payments totaling $1,645 were unreported income. (Def’s Exs D at 50,
56, 59; G at 30, 35.)
Bradshaw testified that the third category of deposits represented cash transfers from
existing accounts to open new bank accounts. On January 28, 2014, Bradshaw withdrew $500
cash from personal account 9862 and deposited it to open new personal account 8303. (Def’s
Exs D at 9; E at 2.) On March 6, 2014, Bradshaw withdrew $5,000 cash from personal account
9862, then used the money to open new business account 6153. (Def’s Exs D at 16; F at 2.)
Bradshaw testified that the fourth category of deposits were short-term disability
insurance payments totaling $7,563. Of those deposits, $6,811 were deposited into Bradshaw’s
personal bank account 8303. (Def’s Ex E at 4, 7, 10.) The remaining amount, $752, was
deposited into her business account 6153. (Def’s Ex F at 6.) Bradshaw testified the payments
were from Standard Insurance Company for stress leave from her corporate employer. Bradshaw
received a W-2 for those insurance payments totaling $8,143. (Def’s Ex A at 15.) Bradshaw
also received a W-2 from her corporate employer for $12,083. (Id. at 13.) Together, those W-2
forms total $20,226 in wages, which is the figure Bradshaw reported on her 2014 tax return.
Bradshaw testified that the fifth category of deposits represented loans she received from
McCormack. Bradshaw testified that McCormack gave her three cash loans totaling $11,000 to
3 DECISION TC-MD 180405R help her struggling business. On August 1, 2014, Bradshaw deposited $5,000 in cash into
business account 6153. (Ptf’s Ex 3 at 4.) On September 26, 2014, Bradshaw deposited $3,000
cash into business account 6153. (Ptf’s Ex 3 at 5.) On October 7, 2014, Bradshaw deposited
$3,000 cash into business account 6153. (Ptf’s Ex 3 at 6.) McCormack testified that there is no
written record of those loans because there was a verbal agreement among family members.
Bradshaw testified that she has paid back $2,200 to McCormack by check. (Ptf’s Ex 6 at 1-5.)
Bradshaw testified that the sixth category of deposits were made to her ex-husband’s
account and belong to him. Bradshaw testified that she should not be taxed on those deposits
because she separated from her ex-husband on February 8, 2014, and account 1424 was in his
control after the separation. On April 14, 2014, $300 was deposited into account 1424 and
Defendant listed that deposit as unreported income. (Def’s Ex G at 19.) Bank account 1424 lists
Bradshaw and her ex-husband as joint owners of the account. (Id.) Bradshaw’s filing status for
the 2014 tax year was head of household. (Def’s Ex A at 1.)
II. ANALYSIS
The issue in this case is whether Defendant’s adjustment to Plaintiff’s gross receipts,
based on its bank deposit analysis, was correct. In analyzing Oregon income tax cases, the court
starts with several general guidelines. First, the court is guided by the intent of the legislature to
make Oregon’s personal income tax law identical in effect to the federal Internal Revenue Code
(IRC) for the purpose of determining taxable income of individuals. ORS 316.007.2 Second, in
cases before the court, the party seeking affirmative relief bears the burden of proof and must
establish his or her case by a “preponderance” of the evidence.
Free access — add to your briefcase to read the full text and ask questions with AI
IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax
SHELLEY ANN BRADSHAW, ) (aka Shelley Ann Martin), ) ) Plaintiff, ) TC-MD 180405R ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION
Plaintiff appealed Defendant’s Conference Decision Letter dated September 27, 2018, for
the 2014 tax year. A trial was held on June 11, 2019, in the courtroom of the Oregon Tax Court.
Shelley Ann Bradshaw (Bradshaw) appeared and testified on her own behalf. Plaintiff’s father,
John McCormack (McCormack), also testified for Plaintiff. Nelly Rudnitskaya, auditor for the
Department of Revenue, appeared and testified on behalf of Defendant. Plaintiff offered
Exhibits 1 to 7 without objection. Defendant offered Exhibits A to N without objection.
I. STATEMENT OF FACTS
Bradshaw testified that in 2014 she derived her income from a corporate employer and
from her own business called Beautiful BEBE Designs LLC (BEBE). She testified that BEBE
began as a virtual business making bedding for infant cribs in 2012 and by 2014 it grew into a
retail store. Bradshaw testified that most sales at the store were done by credit card and little
cash was received. Bradshaw maintained four bank accounts with Columbia Bank: personal
account 9862, personal account 8303, business account 6153, and joint account 1424. (Ptf’s
Exs 1-4.) Bradshaw testified that in late 2014 the store closed for financial reasons.
/// 1 DECISION TC-MD 180405R Bradshaw’s 2014 Oregon personal income tax was selected for audit by Defendant.
(Def’s Ex B at 1.) Rudnitskaya testified she performed a bank deposit analysis by totaling
Bradshaw’s bank deposits and sales reported from ETSY, PayPal, and Square, Inc. and then
subtracting duplicates, non-income deposits, and transfers. She concluded that Bradshaw had
additional unreported income of $62,623. (Def’s Exs N at 1; B at 7.)
Bradshaw testified that the bank deposit analysis mistakenly counted 26 deposits
($34,313) as unreported income. (Ptf’s Ex 7.) Bradshaw testified that those 26 deposits break
into six types of non-income credits: (1) deposits from transfers between bank accounts;
(2) deposits from the sale of her vehicle; (3) cash transfers into new bank accounts; (4) deposits
from short-term disability insurance; (5) deposits from loans; and (6) deposits into Bradshaw’s
ex-husband’s bank account. (Id.)
Bradshaw testified that the first category of deposits were same-day check transfers
between her bank accounts for cash flow reasons. Bradshaw presented bank records of six check
transfers between accounts totaling $8,305. (Ptf’s Ex 7.) On May 15, 2014, Bradshaw wrote a
check for $1,500 from personal account 9862 to business account 6153. (Ptf’s Exs 1 at 1; 3 at 3.)
On May 23, 2014, Bradshaw wrote a check for $2,000 from business account 6153 to personal
account 8303. (Def’s Exs F at 7; E at 15.) On September 2, 2014, Bradshaw wrote a check for
$1,6501 from personal account 9862 to business account 6153. (Ptf’s Exs 1 at 2; 3 at 5.) On
September 10, 2014, Bradshaw wrote a check for $2,200 from personal account 9862 to business
account 6153. (Ptf’s Exs 1 at 2; 3 at 5.) On September 26, 2014, Bradshaw wrote a check for
$600 from business account 6153 to personal account 9862. (Def’s Exs F at 20; D at 50.) On
1 There is a slight discrepancy in the amount transferred between accounts, but the court does not find that significant. 2 DECISION TC-MD 180405R December 4, 2014, Bradshaw wrote a check for $325 from business account 6153 to personal
account 9862. (Def’s Exs F at 33; D at 60.)
Bradshaw testified that the second category of deposits were payments received from the
sale of her used car. Bradshaw testified she sold her used vehicle to a friend for another car
worth $5,500 and approximately $17,000 on a payment plan at $329 per month. When
Bradshaw sold that vehicle, the adjusted basis was $38,379. (Def’s Ex A at 12.) Defendant
contends that those five payments totaling $1,645 were unreported income. (Def’s Exs D at 50,
56, 59; G at 30, 35.)
Bradshaw testified that the third category of deposits represented cash transfers from
existing accounts to open new bank accounts. On January 28, 2014, Bradshaw withdrew $500
cash from personal account 9862 and deposited it to open new personal account 8303. (Def’s
Exs D at 9; E at 2.) On March 6, 2014, Bradshaw withdrew $5,000 cash from personal account
9862, then used the money to open new business account 6153. (Def’s Exs D at 16; F at 2.)
Bradshaw testified that the fourth category of deposits were short-term disability
insurance payments totaling $7,563. Of those deposits, $6,811 were deposited into Bradshaw’s
personal bank account 8303. (Def’s Ex E at 4, 7, 10.) The remaining amount, $752, was
deposited into her business account 6153. (Def’s Ex F at 6.) Bradshaw testified the payments
were from Standard Insurance Company for stress leave from her corporate employer. Bradshaw
received a W-2 for those insurance payments totaling $8,143. (Def’s Ex A at 15.) Bradshaw
also received a W-2 from her corporate employer for $12,083. (Id. at 13.) Together, those W-2
forms total $20,226 in wages, which is the figure Bradshaw reported on her 2014 tax return.
Bradshaw testified that the fifth category of deposits represented loans she received from
McCormack. Bradshaw testified that McCormack gave her three cash loans totaling $11,000 to
3 DECISION TC-MD 180405R help her struggling business. On August 1, 2014, Bradshaw deposited $5,000 in cash into
business account 6153. (Ptf’s Ex 3 at 4.) On September 26, 2014, Bradshaw deposited $3,000
cash into business account 6153. (Ptf’s Ex 3 at 5.) On October 7, 2014, Bradshaw deposited
$3,000 cash into business account 6153. (Ptf’s Ex 3 at 6.) McCormack testified that there is no
written record of those loans because there was a verbal agreement among family members.
Bradshaw testified that she has paid back $2,200 to McCormack by check. (Ptf’s Ex 6 at 1-5.)
Bradshaw testified that the sixth category of deposits were made to her ex-husband’s
account and belong to him. Bradshaw testified that she should not be taxed on those deposits
because she separated from her ex-husband on February 8, 2014, and account 1424 was in his
control after the separation. On April 14, 2014, $300 was deposited into account 1424 and
Defendant listed that deposit as unreported income. (Def’s Ex G at 19.) Bank account 1424 lists
Bradshaw and her ex-husband as joint owners of the account. (Id.) Bradshaw’s filing status for
the 2014 tax year was head of household. (Def’s Ex A at 1.)
II. ANALYSIS
The issue in this case is whether Defendant’s adjustment to Plaintiff’s gross receipts,
based on its bank deposit analysis, was correct. In analyzing Oregon income tax cases, the court
starts with several general guidelines. First, the court is guided by the intent of the legislature to
make Oregon’s personal income tax law identical in effect to the federal Internal Revenue Code
(IRC) for the purpose of determining taxable income of individuals. ORS 316.007.2 Second, in
cases before the court, the party seeking affirmative relief bears the burden of proof and must
establish his or her case by a “preponderance” of the evidence. ORS 305.427. That standard is
///
2 The court’s references to the Oregon Revised Statutes (ORS) are to 2013. 4 DECISION TC-MD 180405R met by a showing that “the facts asserted are more probably true than false[.]” Cook v. Michael,
214 Or 513, 527, 330 P2d 1026 (1958).
A. Schedule C Gross Income Adjustment
Gross income is defined as “all income from whatever source derived * * *.”
IRC § 61(a). A taxpayer has a duty to keep their financial records to prove their income and
deductions. Treas Reg § 1.6001-1(a). “Where a taxpayer’s books do not clearly reflect income,
the Department of Revenue may demonstrate unreported income ‘by any practicable proof that is
available in the circumstances of the particular situation.’ ” Danielson v. Dept. of Rev., TC-MD
160282C, WL 5158730 at *3 (Or Tax M Div Nov. 7, 2017) (quoting Brenner v. Dept. of Rev.,
9 OTR 299, 306 (1983); cf. U.S. v. Doyle, 234 F2d 788, 793 (7th Cir 1956)). The department
may use additional methods such as a bank deposit analysis to determine a taxpayer’s unreported
income. Brenner at 302.
1. Deposits from check transfers between accounts
Bradshaw presented evidence that six checks totaling $8,305 represented transfers
between her various bank accounts. Defendant counted those transfers as unreported income. In
Koch v. Dept. of Rev., TC-MD 160391N, WL 417966 (2018), taxpayers transferred same-day
checks between their own bank accounts to avoid overdraft charges. In that case, taxpayers’
credible testimony and corresponding bank records substantiated the deposits as nontaxable
transfers. Id. at *4.
Similarly, here, Bradshaw matched the $8,305 of deposits with corresponding same-day
check transfers from one account to another. The court finds Bradshaw’s testimony credible
because she traced those deposits with corresponding withdrawals. Additionally, like Koch,
5 DECISION TC-MD 180405R Bradshaw transferred that money to mitigate a lack of funds. The court finds that those six
deposits totaling $8,305 are not income because they are transfers.
2. Deposits from the sale of Plaintiff’s vehicle
Gain on a sale is the amount in “excess of the amount realized [ ] over the adjusted basis
* * *.” IRC § 1001(a). Here, Bradshaw sold her used vehicle in part for a trade and in part for
future payments. Defendant flagged five of those deposits totaling $1,645 as unreported income.
Although Bradshaw sold her vehicle, it was sold for less than the adjusted basis of $38,379.
Thus, the court finds those deposits are not taxable because there was no amount realized over
the adjusted basis.
3. Deposits into new bank accounts
Like her check transfers, Bradshaw also transferred cash to open new bank accounts.
Defendant found those cash deposits were unreported income. In Koch, plaintiffs’ credible
testimony and ability to trace their check transfers substantiated similar deposits as nontaxable.
2018 WL 41796 at *4. Here, although Bradshaw’s opening deposits were not done by check,
those cash deposits are still reliable because the transfers were done on the same day and in the
same bank. Bradshaw traced those transactions and gave credible testimony that those deposits
were transfers between her accounts. The court finds that those opening deposits are not
unreported income.
4. Deposits from short term disability insurance
Defendant counted $7,563 of deposits as unreported income from Bradshaw’s bank
deposit analysis. Those deposits were Bradshaw’s short-term disability insurance payments.
Bradshaw received a W-2 for those payments and also included that income on her 2014 tax
6 DECISION TC-MD 180405R return. The bank deposit analysis misidentified those deposits as additional income. The court
finds that the deposits from short term disability insurance do not represent unreported income.
5. Deposits from a loan
The Department asserts $11,000 in cash deposits were unreported income. Bradshaw
asserts that those deposits were loans from her father and not income. Loans are not considered
to be income. See Comm’r v. Tufts, 461 US 300, 307 (1983). In Nguyen, the plaintiff received
cash loans from his family. Nguyen v. Comm’r, 111 TCM (CCH) 1600 (2016.) There, the court
found deposits were loans based on credible family testimony and supporting documents.
Id. at *3.
Here, Bradshaw offered credible testimony that her father loaned her money to help her
struggling business. McCormack also credibly testified that he and his wife agreed to loan
money to their daughter by a verbal agreement. Furthermore, Bradshaw presented evidence and
testimony of check repayments to her father totaling $2,200. The evidence here (family
testimony and supporting documents) is akin to Nguyen. Although Bradshaw did not present
written loan documents, the credible family testimony along with checks in repayment
demonstrate the existence of a loan. The court finds that those deposits are loans and not
income.
6. Deposits into ex-husband’s account
Bradshaw testified she separated from her husband in February 2014. Subject to
exceptions, a spouse is required to report the income of the other spouse when they file joint tax
returns. See IRC § 6013. Furthermore, IRC section 61(a) requires taxpayer to report all income
derived. IRC § 61(a).
7 DECISION TC-MD 180405R Here, Bradshaw filed as head of household and did not file a joint tax return. Bradshaw
testified that the $300 deposited into account 1424 is money belonging to her ex-husband.
Although that account is a joint account, the money is not Bradshaw’s because her ex-husband
had control of that account after the separation. Bradshaw did not derive any income from that
$300 deposit. See IRC § 61(a). Thus, the court finds, the deposits into Bradshaw’s ex-husband’s
accounts are not income.
III. CONCLUSION
After careful consideration, the court finds that Plaintiff has demonstrated by a
preponderance of the evidence that the sums asserted in the Notice of Deficiency Assessment
were not income and the audit adjustments should be reversed. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is granted.
Dated this __ day of December 2019.
RICHARD DAVIS MAGISTRATE
If you want to appeal this Decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of this Decision or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Richard Davis and entered on December 13, 2019.
8 DECISION TC-MD 180405R