Josef Haghnazarzadeh & Catherine Y. Haghnazarzadeh

• Court: United States Tax Court
• Decided: April 29, 2021
• Docket: 27031-17
• Status: Unpublished

Opinion

T.C. Memo. 2021-47

UNITED STATES TAX COURT

JOSEF HAGHNAZARZADEH AND CATHERINE Y. HAGHNAZARZADEH, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27031-17. Filed April 29, 2021.

Josef Haghnazarzadeh and Catherine Y. Haghnazarzadeh, pro sese.

Halvor R. Melom, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

KERRIGAN, Judge: Respondent determined deficiencies of $2,020,083

and $960,655 and penalties pursuant to section 6662(a) of $404,017 and $192,131

for 2011 and 2012 (years at issue), respectively. The parties have filed two

Served 04/29/21 -2-

[*2] stipulations of settled issues,1 and the only remaining issue is whether certain

deposits into petitioners’ nine bank accounts are ordinary income or nontaxable

deposits.

All statutory references are to the Internal Revenue Code in effect for all

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

Procedure. We round all monetary amounts to the nearest dollar.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. Petitioners resided in

California when they filed their petition. During the years at issue petitioner

husband was in the real estate business. Petitioners had nine bank accounts in the

name of petitioner husband and/or petitioner wife for the years at issue.

In the notice of deficiency respondent determined that petitioners had

unreported taxable income of $4,854,849 and $1,868,212 for 2011 and 2012,

respectively. Respondent’s revenue agent performed a bank deposit analysis to

determine the amount of unreported income.

For 2011 the total amount of net taxable deposits, calculated in the bank

deposit analysis as gross deposits plus interest, minus transfers and nontaxable

1 The parties stipulated, inter alia, that petitioners are not liable for the sec. 6662 penalties for 2011 and 2012. -3-

[*3] deposits, across the nine bank accounts was $5,101,703. Petitioners reported

income of $246,854 on their 2011 return, and respondent determined that items

totaling to this amount could have been deposited into petitioners’ bank accounts

as cash deposits. Respondent subtracted these cash deposits from the net taxable

deposits to arrive at $4,854,849 in unreported taxable income for 2011.

For 2012 the total amount of net taxable deposits, calculated in the bank

deposit analysis as gross deposits plus interest, minus transfers and nontaxable

deposits, across the nine bank accounts was $2,143,896. Petitioners reported

income of $275,584 on their 2012 return, and respondent determined that items

totaling to this amount could have been deposited into petitioners’ bank accounts

as cash deposits. Respondent subtracted these cash deposits from the net taxable

deposits to arrive at $1,868,312 in unreported taxable income for 2012. However,

in the notice of deficiency, respondent mistakenly wrote the unreported taxable

income for 2012 as $1,868,212, and has conceded the $100 difference.

OPINION

Section 61(a) provides that gross income includes “all income from

whatever source derived”. See also Commissioner v. Glenshaw Glass Co., 348

U.S. 426, 430 (1955). A taxpayer is required to maintain books and records

sufficient to establish his or her income. See sec. 6001; DiLeo v. Commissioner, -4-

[*4] 96 T.C. 858, 867 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992). If a taxpayer

failed to maintain these records, the Commissioner may determine income under

the bank deposit method. DiLeo v. Commissioner, 96 T.C. at 867. A bank deposit

is prima facie evidence of income. Id. at 868.

Petitioners did not produce books or records reflecting the full amount of

deposits made to their bank accounts in the years at issue. They did not maintain

books and records sufficient to establish their income. Respondent permissibly

performed a bank deposit analysis to determine their income.

For the tax years at issue the revenue agent examined petitioners’ nine bank

accounts. The revenue agent identified the deposits that were nontaxable or that

petitioners had already reported as income. After removing such deposits from the

computation, respondent determined that petitioners failed to report ordinary

income of $4,854,849 and $1,868,212 for taxable years 2011 and 2012,

respectively.

Once the Commissioner has made the prima facie case that a taxpayer

received income, the taxpayer bears the burden of showing that the deposits made

into his or her account represent nontaxable income. See id. at 869.2 The taxpayer

2 In unreported income cases such as this, the Commissioner must establish “some evidentiary foundation” connecting the taxpayer with the income-producing (continued...) -5-

[*5] must present credible evidence to shift the burden of proof to the

Commissioner under section 7491(a). Petitioners failed to do so.

At trial petitioner husband sought to have a 2011 deposit of $710,000 for

account number 8023 treated as nontaxable. Respondent’s counsel identified this

deposit in the list of deposits already accounted for as nontaxable in the bank

deposit analysis.

Petitioner husband also sought to have certain other deposits treated as

nontaxable. For 2011 he mentioned deposits of $1,556,000, $130,000, and

$60,000 for account number 8023 and deposits of $1,390,000, $875,000, and

$327,000 for account number 4683. For 2012 he mentioned deposits of $75,000,

$137,000, and $198,000, as well as a variety of smaller deposits, for account

number 8023 and deposits of $335,000, $117,000, $192,000, and $90,000 for

account number 4683.

2 (...continued) activity or demonstrating that the taxpayer actually received unreported income. See Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979), rev’g 67 T.C. 672 (1977); see also Edwards v. Commissioner, 680 F.2d 1268, 1270-1271 (9th Cir. 1982) (holding that the Commissioner’s assertion of a deficiency due to unreported income is presumptively correct once some substantive evidence is introduced demonstrating that the taxpayer received unreported income). Petitioners did not dispute receiving the income, and the bank deposit analysis provided evidence that they received the income. -6-

[*6] Petitioner husband did not present evidence substantiating his claim that any

of these other deposits should be treated as nontaxable. We sustain respondent’s

deficiency determinations before us for the years at issue.

We have considered all arguments made by the parties, and to the extent not

mentioned or addressed, they are irrelevant or without merit.

To reflect the foregoing,

Decision will be entered under

Rule 155.