United States Tax Court

T.C. Memo. 2023-12

HRACH SHILGEVORKYAN,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 9247-15. Filed January 23, 2023.

—————

Jason M. Silver and Chris J. Sheldon, for petitioner.

John R. Gordon and Michael R. Harrel, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

ASHFORD, Judge: By statutory notice of deficiency dated 

February 17, 2015, the Internal Revenue Service (IRS or respondent) 

determined a deficiency in petitioner’s federal income tax of $22,867 and 

an accuracy-related penalty pursuant to section 6662(a) of $4,573 for the

2012 taxable year.1 After respondent’s concession,2 the remaining issue 

for decision is whether petitioner is entitled to deduct on Schedule A, 

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

Revenue Code, Title 26 U.S.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. We round some monetary amounts to the nearest 

dollar.

2After the trial was held, respondent conceded that petitioner is not 

liable for the accuracy-related penalty because respondent has not satisfied his 

burden of production pursuant to section 6751(b)(1).

Served 01/23/23
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[*2] Itemized Deductions, mortgage interest paid of $66,354. We resolve 

this issue in favor of respondent. 

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The 

Stipulation of Facts and the attached Exhibits are incorporated herein 

by this reference. Petitioner resided in Arizona when his Petition was 

timely filed with the Court.

When petitioner was 12 years old, he and his family immigrated 

as refugees to the United States from Armenia in 1987 or 1988. 

Petitioner has two older brothers, Edvard and Artur. Petitioner and his 

brothers co-own a number of auto shops, a jewelry store, and a 

restaurant. He and his brothers are also members of Shilgevorkyan, 

LLC, which owns and rents condominiums at Mountain Park

Condominiums in Phoenix, Arizona.

During 2008 through 2011 petitioner was involved in a check 

cashing scheme with his brothers. As part of the check cashing scheme, 

false Forms 1120S, U.S. Income Tax Return for an S Corporation, were 

filed for some of the businesses that he co-owned with his brothers. 

Petitioner executed a closing agreement with the IRS for the 2008–11 

taxable years which included an assessment of taxes due and civil fraud 

penalties pursuant to section 6663. Edvard pleaded guilty to the filing 

of false federal income tax returns and was sentenced to prison. As part 

of Edvard’s plea agreement, he admitted that he acted willfully and 

knew the 2008–11 returns he filed had false information. Additionally, 

as part of his plea agreement, his brothers would not be prosecuted for 

the check cashing scheme. 

The property involved in this case is in Paradise Valley, Arizona. 

In 2005 Edvard purchased the property for $1,525,000, making a 

$392,896 downpayment and obtaining a $1,143,750 bank loan from 

Wells Fargo, N.A. (Wells Fargo). Edvard and his wife, Lusine, were the 

borrowers. Around the same time as the property purchase, Edvard, 

Lusine, and Artur took out a $1,200,000 construction loan. Both loans 

were secured by the Paradise Valley property. The construction loan 

funds were used to construct, inter alia, a 5,300-square-foot house and 

a separate 1,700-square-foot guest house on the property.

Then on August 25, 2006, Edvard, Lusine, and Artur entered into 

temporary bridge financing with Wells Fargo to combine the previous 

loan and the construction loan (2006 bridge loan). In October 2008 they 
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[*3] refinanced the 2006 bridge loan with a new loan from Wells Fargo 

for $2 million. In connection with this loan, they executed a disclosure 

statement which included the following text: “Someone buying my home 

cannot assume the remainder of the obligation on the original terms.” 

The loan agreement also included text that indicated if the borrowers 

sold or transferred the property without the lender’s prior written 

consent, the lender could require immediate repayment.

The deed of trust related to this loan stated that the borrowers 

would “occupy, establish, and use the [p]roperty as [b]orrower’s principal 

residence within 60 days after the execution” of the document. The deed 

of trust further stated that the Paradise Valley property would be the 

borrower’s principal residence for at least one year unless the lender 

agreed in writing or there are “extenuating circumstances” beyond the 

borrower’s control. It also included a provision that any transfer by a 

borrower of his beneficial interest in the property constituted a default 

and Wells Fargo could require immediate payment of the full loan.

Artur never contributed to the downpayment of any of the loans. 

He neither lived at the Paradise Valley property nor paid any of the 

property’s expenses. Artur executed a quitclaim deed dated August 18, 

2010, which conveyed all his interest in the property to petitioner. No 

request was made to Wells Fargo to approve Artur’s conveyance of 

interest in the property. Wells Fargo did not approve the quitclaim 

deed.

Before the execution of the quitclaim deed, Edvard paid the 

expenses related to the Paradise Valley property. Petitioner did not pay 

Artur in exchange for the quitclaim deed. There is no documentation 

associated with the quitclaim deed, including the substitution of 

petitioner as a borrower in Artur’s place. During 2012 petitioner made 

no payments to Wells Fargo related to the loan secured by the property. 

Wells Fargo did not issue petitioner a Form 1098, Mortgage Interest 

Statement, for 2012.

In September 2010 Edvard listed the Paradise Valley property for 

$4 million, but it did not sell at the time. The property was relisted for 

$3,800,000 in 2013. Starting in July 2013, Edvard paid all the expenses 

related to the property.

Petitioner lived in the separate guest house on the Paradise 

Valley property from September 2010 until he purchased a new house 

in April 2013 in Phoenix. He also stayed at the Mountain Park 
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[*4] Condominiums, which were used by other family members. Before 

living in the guest house, petitioner lived with Lusine’s family, i.e., 

Edvard’s in-laws, in Phoenix, referred to as “15th Place.”

For 2009–14, the electricity account with Arizona Public Service 

for at least one of the units at the Mountain Park Condominiums was in 

petitioner’s name. For 2012 petitioner paid the electricity charges by 

personal check; before 2012, these expenses were paid by Shilgevorkyan, 

LLC. The cable television account with Cox Communications for one of 

the units at the Mountain Park Condominiums was also in petitioner’s 

name for 2012. In 2012 petitioner renewed his driver’s license and listed 

his address at the Paradise Valley address. Petitioner did not list the 

Paradise Valley address on his checks or bank statements.

Petitioner obtained a loan so he could purchase his new house. As 

part of the loan application process, he executed a uniform residential 

loan application dated February 21, 2013. He listed his address as the 

Paradise Valley property and indicated that he had rented it for one year 

since the date of the uniform residential loan application. The value of 

this property was not included in his list of assets.

Petitioner received numerous third-party information returns for 

2010–13. None of the information returns for 2010, 2011, or 2013 

reflects the Paradise Valley property as his address. For 2013 only one 

third-party information return, Form 1099–G, Certain Government 

Payments, from the Arizona Department of Revenue lists the Paradise 

Valley property as petitioner’s address. The 15th Place address was 

listed as petitioner’s address on most of the third-party information 

returns.

On his 2010 federal income tax return petitioner listed the 15th 

Place address as his address, and on this return he did not claim a 

deduction for mortgage interest paid related to the Paradise Valley 

property. On his 2011 federal income tax return petitioner listed the 

Paradise Valley property as his address. On his 2012 federal income tax 

return petitioner listed his new house in Phoenix as his address, and on 

the Schedule A attached to this return he deducted, inter alia, $66,354 

for mortgage interest paid related to the Paradise Valley property. This 

deduction was for one-half the total mortgage interest paid in 2012 on 

the Paradise Valley loan as reported by Wells Fargo on the Form 1098 

that was issued to Edvard and Lusine.
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[*5] OPINION

I. Burden of Proof

In general, the Commissioner’s determinations set forth in a 

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

burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 

111, 115 (1933). If the taxpayer produces credible evidence with respect 

to any factual issue relevant to ascertaining his federal income tax 

liability and meets certain other requirements, the burden of proof shifts 

from the taxpayer to the Commissioner as to that factual issue. 

§ 7491(a)(1) and (2).

Petitioner contends that he has met the requirements of section 

7491(a)(2) and produced credible evidence such that the burden of proof 

has shifted to respondent. We disagree. Petitioner failed to maintain 

and produce records as required to substantiate his entitlement to the 

mortgage interest deduction he claimed on his 2012 Schedule A. Apart 

from self-serving testimony by petitioner and Edvard, petitioner has 

failed to produce evidence to support his position. Both petitioner and 

Edvard offered testimony that was vague and contradictory. In 

addition, we note that Edvard’s recent conviction for filing false federal 

income tax returns renders his testimony suspect. See Welker v. 

Commissioner, T.C. Memo. 1997-472, 1997 Tax Ct. Memo LEXIS 557, 

at *17 (“[A] conviction under section 7206(1) may render a taxpayer’s 

credibility suspect.”). Therefore, the burden of proof remains with 

petitioner. 

II. Section 163 Mortgage Interest Deduction

A. Standards

Tax deductions are a matter of legislative grace, and the taxpayer 

bears the burden of proving entitlement to any deduction claimed. Rule 

142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). This 

burden requires the taxpayer to demonstrate that the claimed 

deductions are allowable pursuant to some statutory provision and to 

substantiate the expenses giving rise to the claimed deductions by 

maintaining and producing adequate records that enable the 

Commissioner to determine the taxpayer’s correct liability. § 6001; 

Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky 

v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 

821 (5th Cir. 1976). 
6

[*6] Section 163(a) allows a deduction for all interest paid or accrued 

within the taxable year on indebtedness. Section 163(h)(1), however, 

provides that in the case of a taxpayer other than a corporation (i.e., an 

individual) no deduction is allowed for personal interest paid or accrued 

during the taxable year. Qualified residence interest is excluded from 

the definition of personal interest and so is deductible under section 

163(a). See § 163(h)(2)(D).

The term “qualified residence interest” means any interest paid 

or accrued during the taxable year on either acquisition or home equity 

indebtedness with respect to any qualified residence of the taxpayer. 

§ 163(h)(3)(A). A taxpayer’s qualified residence is his principal 

residence (within the meaning of section 121) and one other residence of 

the taxpayer which is selected by the taxpayer and is used by the 

taxpayer as a residence (within the meaning of section 280A(d)(1)). 

§ 163(h)(4)(A). The determination of whether any property is a qualified 

residence of the taxpayer shall be made as of the time the interest is 

accrued. § 163(h)(3)(A) (flush language).

Acquisition indebtedness is any indebtedness which is 

(1) incurred in acquiring, constructing, or substantially improving any 

qualified residence of the taxpayer and (2) secured by such residence. 

§ 163(h)(3)(B)(i). For any period, the aggregate amount of acquisition 

indebtedness shall not exceed $1 million. § 163(h)(3)(B)(ii). Acquisition 

indebtedness also includes any indebtedness secured by such residence 

resulting from the refinancing of acquisition indebtedness, but only to 

the extent the amount of the indebtedness resulting from such 

refinancing does not exceed the amount of the refinanced indebtedness. 

§ 163(h)(3)(B)(i) (flush language). The parties do not dispute that the 

mortgage secured by the Paradise Valley property qualifies as 

acquisition indebtedness.

Where a mortgaged property is jointly owned and the co-owners 

are jointly liable on the mortgage, each owner is entitled to a deduction 

for the mortgage interest that he actually pays out of his own funds. 

Jolson v. Commissioner, 3 T.C. 1184, 1186 (1944); Castaneda-Benitez v. 

Commissioner, T.C. Memo. 1981-157. The indebtedness generally must 

be an obligation of the taxpayer claiming the deduction, not the 

obligation of another. Golder v. Commissioner, 604 F.2d 34, 35 (9th Cir. 

1979), aff’g T.C. Memo. 1976-150; Hynes v. Commissioner, 74 T.C. 1266, 

1287 (1980). Interest paid by the taxpayer on a real estate mortgage of 

which he is the legal or equitable owner—even though the taxpayer is 

not directly liable upon the bond or note secured by such mortgage—
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[*7] may be deducted as interest on his indebtedness. Treas. Reg. 

§ 1.163-1(b).

State law determines the nature of property rights, such as legal 

or equitable ownership, while federal law determines the appropriate 

federal tax consequences of those rights. See United States v. Nat’l Bank 

of Com., 472 U.S. 713, 722 (1985); Blanche v. Commissioner, T.C. Memo. 

2001-63, aff’d, 33 F. App’x 704 (5th Cir. 2002). Arizona law applies in 

determining petitioner’s property rights. 

B. Analysis

Petitioner contends that he owns half of the Paradise Valley 

property and has properly deducted his share of the qualified residence 

interest. We need not accept a taxpayer’s self-serving testimony when 

the taxpayer fails to present credible, corroborative, documentary 

evidence. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). Petitioner 

must satisfy the following three requirements to be entitled to a 

deduction pursuant to section 163(a) and (h)(2)(D): (1) the indebtedness 

must be his obligation, (2) he must either be the legal or equitable owner 

of the property subject to the mortgage, and (3) the residence is his

qualified residence. See Treas. Reg. § 1.163-1(b).

1. Obligation on the Debt

Petitioner argues that he was a legal owner of the Paradise Valley 

property, and it was his only residence during 2012. He offered no 

evidence to show that he made any mortgage interest payments relating 

to the Paradise Valley property, including records of payment that he 

claimed he made to Edvard. There is no record that petitioner made 

payments to Wells Fargo or that Wells Fargo issued Form 1098 to him.

Edvard testified that he had an agreement with petitioner in 

which petitioner would pay half of the Paradise Valley property 

expenses and be entitled to half of the profits from the sale of the 

property. Petitioner produced no documentary evidence in support of 

the purported agreement. Still, for the sake of argument we will assume 

that petitioner was partially obligated to make payments on the Wells 

Fargo loan.

2. Legal or Equitable Ownership of the Property

Petitioner contends that the quitclaim deed shows that he has an 

interest in the Paradise Valley property. The quitclaim deed does not 
8

[*8] establish whether Artur had title in the property. A quitclaim deed 

cannot convey greater rights to property than those that the grantor 

possessed. See, e.g., SWC Baseline & Crimson Invs., LLC v. Augusta 

Ranch Ltd. P’ship, 265 P.3d 1070, 1079 (Ariz. Ct. App. 2011). Because 

Artur did not have an interest in the Paradise Valley property, he could 

not transfer ownership to petitioner. 

Under Arizona law, an accommodation is made when a single 

instrument is signed both by the primary obligor who receives the 

benefit of the instrument and by the secondary obligor who does not 

receive the benefit of the instrument (the accommodation party). Ariz. 

Rev. Stat. Ann. § 47-3419(A) (West 2022). If an accommodation party 

ends up paying on the instrument, that party may seek reimbursement 

from the primary obligor and may enforce the instrument, but the party 

does not have a right to the underlying property. Ariz. Rev. Stat. Ann. 

§ 47-3419(E) (West 2022). 

From the testimony we reach the conclusion that Artur was never 

an owner of the Paradise Valley property, but rather was an 

accommodation party. Artur was a cosigner but never made a single 

payment, and there is no evidence to support that he could force a sale 

of the property. Under Arizona law, Artur was an accommodation party 

and had no ownership interest in the property. Therefore, Artur could 

not transfer ownership to petitioner via a quitclaim deed. 

We conclude that petitioner did not have legal title to the 

Paradise Valley property because Artur never had an interest in the 

property to transfer to him. Neither did petitioner have equitable title 

to the property. There is no evidence showing that petitioner was liable 

for payments due on the Wells Fargo loan. Petitioner did not pay any 

consideration for the quitclaim deed. He did not provide credible 

evidence that he paid expenses associated with the property or that he 

bore any benefits or burdens of the property. See Baird v. 

Commissioner, 68 T.C. 115, 124 (1977). Therefore, petitioner is not an 

equitable owner of the property.

3. Qualified Residence

For petitioner to be entitled to the mortgage interest deduction, 

the residence needs to be his qualified residence. Whether property is 

used by the taxpayer as the taxpayer’s residence under section 121 

depends upon all the facts and circumstances. Treas. Reg. § 1.121-

1(b)(1). 
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[*9] Even if petitioner was able to substantiate his payments to 

Edvard, we would still uphold respondent’s determination because 

petitioner failed to meet his burden of establishing that the Paradise 

Valley property was his principal residence during 2012 or that he 

selected it as “1 other residence” for purposes of section 163(h)(4)(A)(i). 

Documentary evidence presented at trial was contradictory.

Petitioner had his mail sent to multiple addresses; almost all of 

the information returns issued to him in the relevant years listed 15th 

Place as his address. He listed the Paradise Valley property as his 

residence on a February 21, 2013, uniform residential loan application 

but indicated that he was a renter. The property was not listed on his 

bank statements or personal checks. He admitted to staying at the 

Mountain Park Condominiums at times, and certain utilities at some of 

those condominium units were in his name and paid out of his personal 

banking account. Indeed, the record does not indicate how much time 

during 2012 he spent at either the Paradise Valley property or the 

Mountain Park Condominiums. We conclude that petitioner has not 

met his burden of proving that the Paradise Valley property was his 

qualified residence for 2012.

III. Conclusion

We hold that petitioner is not entitled to the mortgage interest 

deduction of $66,354 that he claimed on his 2012 Schedule A.

We have considered all of the arguments made by the parties and, 

to the extent they are not addressed herein, we find them to be moot, 

irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered for respondent as to the deficiency and for 

petitioner as to the accuracy-related penalty.