T.C. Mem o. 2 01 5- 3

UNITED STAT ES TAX COURT

STEVEN A. SODIPO, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 19 15 6- 12
. Fi le d J anuary 5, 2 01 5.

St ev enA. Sod ip o, p ro se. W il li am J. Greg g, fo r res po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION CHIECHI, J ud ge : Re sp on de ntde te rm in edde fic ie nc ie s i n, ad di ti on s und er se ct io n 6 65 1( a)(1 ) an d (2 ) to , anda frau d p en al ty und er s ect io n 6 66 3( a) o n 1

All sec ti on refe ren ces are t o t he Int ern al Rev enue Co de (Co de ) in effe ctfor 1 th e y ears at i ss ue . All R

ul e ref eren ces are t o the Tax C ou rt Rul es of P ract ic e an d Pro cedur e.- 2 -

[* 2] pe ti ti on er’s Fed eral in co m e ta x (t ax ) as fol lo ws:
Add it io ns to tax un de r se cs . 66 51 (a)( 1) 66 51 (a)( 2) Pen al ty un de r se c. Year Defi ci en cy 66 63 (a) 20 05 $3 4,5 12 --- --- $2 5,8 84 20 06 54 ,66 6 $1 2,2 99 .85 $1 3,6 66 .50 --- 20 07 33 ,29 3 7,4 90 .93 8,3 23 .25 --- The is su es rem ai ni ng forde ci si on are: (1 ) Doe s p et it io ne r ha ve cert ai n u nr ep orte d i nc om e fo r eac h o f hi s t ax ab le y ears 20 05 , 20 06 , and20 07 ? W e h ol d t ha t h e d oe s. (2 ) Is pe ti ti on er en ti tl edto de du ctcert ai n c la im edbu si ne ss ex pe ns es for each of h is tax ab le y ears 20 05 , 20 06 , and20 07 ? W e h ol d t ha t h e is no t. (3 ) Is pe ti ti on er en ti tl edto de du ctcla im edde pe nd en cy ex em pt io ns for two ch il dr enforeach of h is tax ab le y ears 20 06 an d 2 00 7? W e h ol d t ha t h e is no t. (4 ) Is pe ti ti on er l iabl e fo r th e p en al ty for fraudun de r se ct io n 6 66 3( a) fo r hi s ta xabl e y ear 2 00 5? W e h ol d t ha t h e is
. (5 ) Is pe ti ti on er l iabl e fo r th e ad di ti onto tax un de r se ct io n 6 65 1( a)(1 ) fo r each of h is tax ab le y ears 20 06 an d 2 00 7? W e h ol d t ha t h e is
. (6 ) Is pe ti ti on er l iabl e fo r th e ad di ti onto tax un de r se ct io n 6 65 1( a)(2 ) fo r each of h is tax ab le y ears 20 06 an d 2 00 7? W e h ol d t ha t h e is
.- 3 -

[* 3] FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Pet it io ne r was in carc erat edinPenns y lv an iaat t he ti m e h e fi le d t he pe ti ti on . Befo re h is in carc erat io n, an d a t the ti m e o f th e tr ia l i n t hi s ca se , pet it io ne r res id ed in Marylan d. At al l re le va ntti m es , pet it io ne r, Ste ve n A. So di po (Mr. So di po ), was li cen se d a s a p ha rm aci stinMarylan d u nt il hi s l ic en se was re vo ke d i n Oct ob er 20 06 . On a d at e n otest ab li sh edby the reco rd , Mr. So di po be cam e in vo lv edina co ns pi racy to d is tri bu te hydro co do ne un la wfu ll y (hydro co do ne di st rib ut io n act iv it ie s) . In Oct ob er 2 00 6, l aw en fo rcem en t o ffi cers arre st edMr. So di po be cau se of h is hydro co do ne di st rib ut io n a ct iv it ie s. At al l re le va ntti m es , Mr. So di po was the so le st oc kh ol de r of Newcare Hom e Heal th Serv ic es , Inc . (Newcare Heal th ), an d ast oc kh ol de r of Newcare Dev el op er & C us to m

Bu il de rs , Inc . (Newcare Deve lo pe r) (s om et im es co ll ect iv el y , Newcare co rp or at io ns ). At al l re le va ntti m es , Mr. So di po was the so le m em be r of Cas t, LLC (Ca st ), a li m it edli ab il it y co m pa ny.- 4 -

[* 4] At al l re le va ntti m es , in cl ud in g dur in g t he y ears at i ss ue , Mr. So di po , hi s sp ou se , Dawnet te So di po (Ms . Sod ip o) , Newcare He al th , Newcare De ve lo pe r, an d RX Ph arm acy A ss oc ia te s m ai nt ai ne d i n t he ir r es pe ct iv e n am es cert ai n a cco un ts , in cl ud in g t he fol lo win g, atth e fi na nc ia l i ns ti tu ti on s s ho wn:

In st itut io n Acco un t No . end in g Acco un t h ol de r Ban k o f Am eri ca 36 40 Mr. So di po Ban k o f Am eri ca 83 09 Mr. So di po APGFCU 10 00 Ms . Sod ip o

1 Su sque hann a Ban k 43 32 Mr. So di po Harb orBan k 79 59 RX Ph arm acy Ass oc ia te s 2 M & T Ban k 31 50 Newcare Heal th 1s t M ari ne r Ban k 82 96 Newcare Heal th Su sque hann a Ban k 11 89 Newcare Heal th Su sque hann a Ban k 06 52 Newcare Deve lo pe r APGFCU s ta nd s fo r Abe rd eenPro vi ng Grou ndFed eral Cred itUni on . 1 Dur in g 2 00 5, a t ot al of $ 7,8 80 incas h was de po si te d i nt o a nd$3 7.0 5 o f di vi de nd s was earn edon th e APGFCU ac co un t i n que st io n (c ol le ct iv el y , APGFCU de po si ts ), ora to ta l o f $7 ,91 7.0 5, an d ach eckfor$1 ,40 0 ($ 1,4 00 cas he d c he ck ) was cas he d on th atacco un t. As d is cu ss edbe lo w, RX Pha rm acy A ss oc ia te s was th e n am e o f Mr. 2 So di po ’s so le pro pr ie to rs hi p.- 5 -

[* 5] At al l re le va ntti m es , in cl ud in g dur in g t he y ears at i ss ue , Mr. So di po ha d si gn at ory au th or ity ov er the acco un ts sh own inth e tabl e ab ov e an d h addo m in io n
an d c on tro l o ve r eac h o f th os e acc ou nt s. Fo r ex am pl e, Mr. So di po si gn edan d
cas he d ach eckpa y ab le to hi m se lf f or$1 0,0 00 ($1 0,0 00 cas he d c he ck ) dr awnon th e M & T Ba nkacco un t wi thanacco un t n um be r en di ng 31 50 th atNewcare Heal th m ai nt ai ne d i n i ts na m e. At al l re le va ntti m es , Newcare De ve lo pe r an d C as t m ai nt ai ne d i n t he ir
res pe ct iv e n am es acco un ts at M & T Ban k wi th acco un t num be rs en di ng 07 50 an d 22 70 , res pe ct iv el y . (W e sh al l re fer c ol le ct iv el y to th e acc ou nt s wi th acco un t
nu m be rs en di ng 07 50 an d 2 27 0 a ndth e acc ou nt s s ho wn i n t he tab le ab ov e as th e acco un ts inqu es ti on .) Mr. So di po ti m el y

fil eda ta x re tu rnforhi s t ax ab le y ear 2 00 5 (2 00 5 re tu rn ) th atFel ix Afol ab i, a ce rti fie d p ub li c acc ou nt an t an d p ai d t ax return p rep arer , had pr ep aredforhi m . Mr. So di po rep orte d i n h is 20 05 return “ [t]ax ab le in te res t” of $1 41 . The o nl y

ot he r in co m e th atMr. So di po rep orte d i n h is 20 05 return was

“ [b ]usi ne ss in co m e” o f $4 7,3 49 fro m two Sch edul es C, Pro fitor Lo ss Fro m Bu si ne ss (Sch edul e C), tha t M r. So di po in cl ud edwith h is 20 05 return. Inon e o f th os e sc he du le s, M r. So di po rep orte d “ [g ]ros s re cei pt s o r sa le s” of $ 45 ,00 0,

“ [c]os t o f go od s s ol d” of $ 30 ,32 2, “ [g ]ros s p ro fit ” an d “ [g ]ros s i nc om e” o f- 6 -

[* 6] $1 4,6 78 , “ [t]ot al ex pe ns es ” o f $1 6,7 75 , anda lo ss of $ 2,0 97 fro m anact iv ity de sc rib edas “ PHARMAC EUTICAL SALES” th athe co nduc te d u nd er the

“ [b ]usi ne ss na m e” o f “ RX PHARMAC Y ASSOCIATES”. Inth e se co ndSch edul e C (2 00 5 S ch edul e C-2 ) th atMr. So di po in cl ud ed with h is 20 05 return, h e rep orte d “ [g ]ros s re cei pt s o r sa le s” , “ [g ]ros s p ro fit ”, an d

“ [g ]ros s i nc om e” o f $1 10 ,00 0, “ [t]ot al ex pe ns es ” o f $6 0,5 54 , and“ [n ]et pr of it ” o f $4 9,4 46 fro m

anact iv ity

de sc rib edas “ PHARMAC Y CONSULTANT”. The

“ [t]ot al ex pe ns es ” th atMr. So di po cla im edinhi s 2 00 5 S ch edul e C-2 (20 05 Sch edul e C-2 ex pe ns es ) co ns is te d o f th e fo ll owi ng : Exp en se Am ou nt Car andtru ck $1 5,2 22 Dep reci at io n a nd sec ti on 17 9 72 1 Supp li es 12 ,62 8 Tax es an d l ic en se s 31 5 Trav el 4,0 00 Deduc ti bl e m eal s an d ent ert ai nm en t 60 0 Oth er 27 ,06 8 Tot al 60 ,55 4- 7 -

[* 7] Newcare Deve lo pe r, a C co rp or at io n, d idno t fi le Fo rm 11 20 , U.S. Corp or ati onInc om e Tax Return (c or po rat e ta x re turn ), fo r it s t ax ab le y ear 2 00 5. 2 Mr. So di po di d n otfil e a t ax return, an d d idno t p ay any tax , with re sp ectto each of h is tax ab le y ears 20 06 an d 2 00 7. In20 08 , a jury returne d c on vi ct io ns (Mr. So di po ’s con vi ct io ns ) of Mr. So di po forth e fo ll owi ng cri m es rel at in g t o h is hydro co do ne di st rib ut io n a ct iv it ie s: co ns pi racy to d is tri bu te a co nt ro ll edsubs ta nc e; aid in g a ndab et ti ng th e d is tri bu
ti onof aco nt ro ll edsubs ta nc e; co ns pi racy to l aund er a m on et ary in st ru m en t;
m on et ary tra ns act io ns incri m in al ly deri ve d p ro pe rty; an d fi li ng a fal se tax return in vi ol at io n o f se ct io n 7 20 6( 1) for hi s t ax ab le y ear 2 00 5. As a res ul t o f Mr. So di po ’s con vi ct io ns , he was requi redto for fei t ce rta in ass et s, i nc lu di ng th e fu nd s in th e acc ou nt s i n que st io n. So m et im e aft er the jury returne d M r. So di po ’s con vi ct io ns , res po nd en t be ga n an e xam in at io n o f eac h o f hi s t ax ab le y ears 20 05 , 20 06 , and20 07 . Res po nde nt ’s rev enue ag en t (r ev enue ag en t) wh o was ass ig ne d t o t ha t ex am in at io n a sk ed Mr. So di po to pro vi de he r with a ny bo ok s o r rec or ds th athe ha d m ai nt ai ne d The reco rddo es no t es tabl is h wh ethe r Newcar e Dev el op er fi le d aco rp or at e 2 ta x re turnforeach of i ts tax ab le y ears 20 06 an d 2 00 7. No r do es th e rec or d es tabl is h wh ethe r Newcar e Heal th , a C co rp or at io n, fi le d aco rp or at e ta x re tu rnfor each of i ts tax ab le y ears 20 05 , 20 06 , and20 07
.- 8 -

[* 8] rel at in g t o h is in co m e an d h is ex pe ns es foreach of t ho se y ears . Mr. So di po di d n otgi ve th e rev enue ag en t an y su chbo ok s o r rec or ds . As a res ul t, the rev enue ag en t d eci de d t o u se th e b an k d ep os it s m etho d i n o rd er t o d et erm in e whe th er Mr
. So di po ha s an y

un rep orte d i nc om e fo r any of t he y ears at i ss ue . Inord er t o c on du ctanan al y si s o f Mr. So di po ’s ban k a cco un ts (ba nk de po si ts an al y si s) purs uantto th e b an k d ep os it s m etho d, the rev enue ag en t as ke d Mr. So di po forhi s b an k re co rd s. Mr . Sod ip o d idno t co m pl y with t ha t re qu es t an d di d n otpro vi de an y

ba nkreco rd s t o t he rev enue ag en t. Co ns eque nt ly, th e rev enue ag en t i ss ue d s umm on se s t o the fin an ci al in st itut io ns inwhi chth e acc ou nt s i n qu es ti on were m ai nt ai ne d a ndth ereb y ob ta in edth e rec or ds forth os e acc ou nt s. The rev enue ag en t al so is su eda su m m on s t o S us qu eh an naBan k fo r th e rec or ds of
anacco un t wi thanacco un t n um be r en di ng 19 73 th atCas t m ai nt ai ne d i n i ts na m e. The rev enue ag en t an al yzedth e acc ou nt s i n que st io n a ndth atSu sque ha nn a acco un t (c ol le ct iv el y , ana lyzed ac co un ts ) whe n s he co nduc te d h er b an k d ep os it s
an al y si s. Inco nduc ti ng res po nd en t’s b an k d ep os it s an al y si s, the rev enue ag en t at te m pt edto asc ert ai n wh ethe r an y of t he de po si ts in to th e an al yzedacco un ts du rin g e ach of t he y ears at i ss ue is no nt ax ab le be cau se , forex am pl e, a d ep os itha d be enm ad e as a res ul t o f a tran sf er o f fu nd s b etweentwo of tho se acco un ts . The- 9 -

[* 9] rev enue ag en t re du cedth e to ta l d ep os it s i nt o t he an al yzedacco un ts by (1) al l de po si ts m ad e in to th os e acc ou nt s dur in g e ach of the y ears at i ss ue th atsh e de te rm in edto be no nt ax ab le an d (2 ) th e in co m e th atMr. So di po ha d re po rte d i n hi s 2 00 5 re tu rn . On s ev eral oc cas io ns th e rev enue ag en t d is cu ss edwith M r. So di po th e b an k de po si ts an al y si s tha t s he was c on du ct in g andoff eredhi m th e o pp ortu ni ty to s ho w th atcert ai n d ep os it s m ad e in to th e an al yzedacco un ts are n on ta xabl e. Mr. So di po fai le d t o e st ab li sh th atan y of t he de po si ts m ad e in to th os e acc ou nt s i s n on ta xabl e. The res ul ts of the bankde po si ts an al y si s tha t the rev enue ag en t co nduc te d were tha t M r. So di po ha s the fol lo win g a m ou ntof u nr ep orte d i nc om e fo r eac h o f th e y ears at i ss ue : 20 05 20 06 20 07

$2 7,1 60 .34 $1 35 ,38 8.6 5 $8 8,1 43 .13 Res po nd en t i ss ue d ano ti ce o f de fic ie nc y (no ti ce) t o M r. So di po for hi s ta xabl e y ears 20 05 , 20 06 , and20 07 . In tha t n ot ic e, res po nd en t d et erm in ed(1) th at Mr. So di po ha s u nr ep orte d i nc om e fo r th e y ears at i ss ue of $ 88 ,53 7, $ 20 0,6 53 , and $1 40 ,29 1, re sp ect iv el y , (2) to di sa ll ow $ 47 ,61 1 (2 00 5 S ch edul e C-2 ex pe ns es at is su e) o f th e “ [t]ot al ex pe ns es ” o f $6 0,5 54 th atMr. So di po ha d c la im edinhi s 20 05 Sch edul e C-2 , (3) th atMr. So di po is li ab le forth e fraudpe na lt y un de r- 10 -

[* 10 ] sec ti on 66 63 (a) fo r hi s t ax ab le y ear 2 00 5, an d (4 ) th atMr. So di po is li ab le fo r th e ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(1 ) an d (2 ) fo r eac h o f hi s t ax ab le y ears 20 06 an d 2 00 7. Inm ak in g t he de te rm in at io ns inth e n ot ic e th atMr. So di po ha s u nr ep orte d i nc om e fo r eac h o f th e y ears at i ss ue , res po nd en t re li edonth e b an k de po si ts an al y si s tha t the rev enue ag en t h adco nduc te d b utm ad e certa inm od ifi cati on s t o tha t an al y si s. 3 OPINION Pet it io ne r be ars th e b ur de n o f es tabl is hi ng th atth e d et erm in at io ns inth e no ti ce tha t re m ai n a t i ss ue are erro ne ou s. See Ru le 14 2( a); W el chv. Hel ve rin g, 29 0 U.S. 1 11 , 11 5 (1 93 3) . Dedu ct io ns are a m atte r of leg is la ti ve gra ce, an d pe ti ti on er b ears th e b ur de n o f pr ov in g e nt it le m en t t o a ny deduc ti on cla im ed . See INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ). The C od e an d t he reg ul at io ns th ereu nd er re qu ire d p et it io ne r to m ai nt ai n re co rd s s uf fic ie ntto est ab
li shth e am ou ntof a ny deduc ti on cla im ed . See s ec. 6 00 1; sec . 1.6 00 1- 1( a), In co m e Tax Reg s.
Bec au se of c ert ai n m od ifi cat io ns th atres po nd en t m ad e to th e rev enue 3 ag en t’s b an k d ep os it s an al y si s, the de te rm in at io ns inth e n ot ic e o f th e res pe ct iv e am ou nt s o f un rep orte d i nc om e fo r Mr. So di po ’s tax ab le y ears 20 05 , 20 06 , and 20 07 are n otth e sa m e as th e co nc lu si on s o f th e rev enue ag en t re ga rd in g t he res pe ct iv e am ou nt s o f un rep orte d i nc om e fo r th os e y ears ba se d o n t he ba nkde po si ts an al y si s tha t s he ha d c on du ct ed
.- 11 -

[* 11 ] Befo re turni ng to th e is su es th atrem ai n fo r de ci si on , we sh al l ev al ua te th e te st im on y of M r. So di po on whi chhe rel ie s i n s up po rt o f hi s p os it io ns with re sp ect to th os e is su es , th e te st im on y of M s. So di po on whi chMr. So di po rel ie s i n s up po rt of on e o f th os e is su es , andth e te st im on y of the rev enue ag en t o n wh om res po nde ntrel ie s i n s up po rt o f res po nd en t’s p os it io ns with re sp ectto cert ai n o f th os e is su es . W e fo un d M r. So di po ’s tes ti m on y to be incert ai n m at eri al res pe ct s g en eral , co nc lu so ry , vag ue , un co rro bo rat ed , sel f-s erv in g, an d/ orno t cr ed ib le . W e sh al l n ot rel y on th e te st im on y

of M r. So di po to est ab li sh hi s p os it io n wi thres pe ctto each of th e is su es th atrem ai n fo r de ci si on . W e fo un d t he bri ef t es ti m on y of M s. So di po to be incert ai n m at eri al res pe ct s v ag ue , un co rro bo rat ed , servi ng th e in te res ts of Mr. So di po , and/o r no t cr ed ib le . W e sh al l n otrel y on th e te st im on y

of M s. So di po to est ab li sh Mr. So di po ’s po si ti on with re sp ectto th e is su e th atrem ai ns for de ci si on ab ou t wh ic h s he tes ti fie d. Se e, e.g ., Tok ars ki v. Co m m is si on er, 8 7 T.C. 74 , 77 (19 86 ). W e fo un d t he tes ti m on y of t he rev enue ag en t t o b e trus two rth y . W e sh al l re ly on t ha t t es ti m on y as we de em

ap pr op ria te . W e n ow co ns id er the is su es th atrem ai n fo r de ci si on . W e ad dr es s i ni ti al ly whe th er Mr . Sod ip o h as un rep orte d i nc om e fo r eac h o f th e y ears at i ss ue th at- 12 -

[* 12 ] res po nd en t d et erm in edon th e b as is of the bankde po si ts m etho d. The 4
rev enue ag en t as ke d M r. So di po to pro vi de he r with a ny bo ok s o r rec or ds th athe ha d m ai nt ai ne d re lati ng to hi s i nc om e an d h is ex pe ns es foreach of t ho se y ears . Mr. So di po di d n otgi ve th e rev enue ag en t an y su chbo ok s o r rec or ds . As a res ul t, th e rev enue ag en t d eci de d, co rrec tl y we co nc lu de , to us e th e b an k d ep os it s m etho d in ord er t o d et erm in e whe th er Mr . Sod ip o h as an y un rep orte d i nc om e fo r any of th e y ears at i ss ue . See Nic ho la s v . Comm is si on er, 7 0 T.C. 1 05 7, 1 06 4 (1 97 8) . In
co nduc ti ng th e b an k d ep os it s an al y si s, the rev enue ag en t was requi redto , anddi d, ta ke in to acco un t an y

no nt ax ab le so ur ce o f a d ep os itof wh ic h s he ha d kno wled ge . See C la yto n v . Comm is si on er, 1 02 T.C. 63 2, 6 45 -6 46 (19 94 ). In r eco ns tru ct in g a
Afte r is su in g t he no ti ce, b utbe fo re tria l, re sp on de ntco nc ed edth atcert ai n 4 un rep orte d i nc om e fo r eac h o f th e y ears at i ss ue th atres po nd en t h adde te rm in edin th atno ti ce o n t he ba si s o f th e b an k d ep os it s an al y si s i s n otin co m e fo r eac h o f th os e y ears . As a res ul t o f th os e co nc es si on s, i t i s re sp on de nt ’s po si ti onth atMr. So di po ha s u nr ep orte d i nc om e fo r hi s t ax ab le y ears 20 05 , 20 06 , and20 07 of $5 5,5 07 .80 , $1 59 ,42 4.3 7, an d $ 71 ,42 0.4 8, re sp ect iv el y . W e n ot e th atwe be li ev e res po nd en t m ad e o ne or m or e err or s i n c on ced in g t ha t M r. So di po ha s u nr ep orte d in co m e o f $7 1,4 20 .48 forhi s t ax ab le y ear 2 00 7. Ho wev er, s in ce an y su cherro r(s ) res ul te d i n a n a m ou ntat i ss ue forth aty ear i n M r. So di po ’s fav or , we sh al l n ot di sturb t ha t am ou nt . On b rie f, Mr. So di po co nt es ts on ly (1) $ 55 ,21 4.5 1 o f th e $ 55 ,50 7.8 0 o f un rep orte d i nc om e th atres po nd en t n ow co nt en ds he ha s fo r hi s t ax ab le y ear 2 00 5 an d (2 ) $1 0,0 00 of t he $1 59 ,42 4.3 7 o f un rep orte d i nc om e th atres po nd en t n ow co nt en ds he ha s fo r hi s t ax ab le y ear 2 00 6. Thus , th e am ou nt s o f un rep orte d in co m e th atrem ai n a t i ss ue forMr. So di po ’s tax ab le y ears 20 05 , 20 06 , 20 07 , res pe ct iv el y , are $ 55 ,21 4.5 1, $ 10 ,00 0, an d $ 71 ,42 0.4 8.- 13 -

[* 13 ] ta xp ay er’s i nc om e u si ng th e b an k d ep os it s m etho d, n oton ly dep os it s i nt o
acco un ts th atth e ta xp ay er m ai nt ai ns inhi s/he r na m e b utals o d ep os it s i nt o a cco un ts un de r th e d om in io n a ndco nt ro l o f th e ta xp ay er are i nc lu de d. Ch am be rs v. 5 Co m m is si on er, T.C. Mem o. 2 01 1- 11 4, 2 01 1 WL 21 35 37 6, at*7
.

“ A ban k d ep os itis pri m a fac ie ev id en ce o f in co m e an d re sp on de ntne edno t pr ov e a l ik el y

so ur ce o f th atin co m e.” Tok ars ki v. Co m m is si on er, 8 7 T.C. at77
. Mr. So di po be ars th e b ur de n o f pr ov in g tha t re sp on de nt ’s det erm in at io ns of in co m e b as edon th e b an k d ep os it s m etho d are erro ne ou s. See Cla yto n v . Com
m is si on er, 1 02 T.C. at 6 45 . Mr. So di po m ay sat is fy th atbu rd enby establ is hi ng th atth e d ep os it s tha t re m ai n a t i ss ue are d eri ve d fr om a no nt ax ab le so ur ce. See Nich ol as v. Co m

mis si on er, 7 0 T.C. at10 64
. It i s M r. So di po ’s po si ti on th atres po nd en t was arb it rary in d et erm in in g h is
un rep orte d i nc om e fo r eac h o f th e y ears at i ss ue . In s up po rt o f hi s p os it io n, M r. 6 So di po arg ue s tha t i t was arb itrary for res po nd en t t o i nc lu de inhi s i nc om e fo r cert ai n o f th e y ears at i ss ue (1) cert ai n d ep os it s m ad e in to cert ai n o f th e acc ou nt s in qu es ti on th aton e o f th e Newcar e co rp or at io ns , hi s s po us e, an d h e m ai nt ai ne d i n A tax pa y er h as do min io n a ndco nt ro l o ve r certa in fun ds if the tax pa y er h as 5 th e fre ed om

to us e th os e fu nd s atwil l. Ru tk in v. Un it edSta te s, 3 43 U.S. 13 0, 1 37 (1 95 2)
. W e co ns id er o nl y

Mr. So di po ’s po si ti on s tha t h e adva nc es on bri ef. 6- 14 -

[* 14 ] th ei r res pe ct iv e n am es , (2) a ch eckfor$1 ,40 0 c as he d dur in g 2 00 5 t ha t was 7 dr awnon th e APGFCU ac co un t wi thanacco un t n um be r en di ng 10 00 th atMs
. So di po m ai nt ai ne d i n h er n am e, an d (3 ) a ch eckfor$1 0,0 00 dra wn o n the M & T Ban k a cco un t wi th anacco un t n um be r en di ng 31 50 th atNewcare Heal th m ai nta in edinit s n am e, whi chhe wrot e, si gn ed , m ad e p ay ab le to hi m se lf, andcas he d. W e ad dr es s b el ow ea chof t ho se de po si ts , th e $ 1,4 00 cas he d c he ck , andth e

The fol lo win g a re the am ou nt s o f th e d ep os it s i nt o c ert ai n a cco un ts at t he 7 fin an ci al in st itut io ns sh own th atpe ti ti on er ar gu es are n otin cl ud ib le inhi s i nc om e fo r hi s t ax ab le y ears in di cat ed : Year In st itut io n Acco un t No . end in g Acco un t h ol de r Am ou nt 20 05 APGFCU 10 00 Ms . Sod ip o $7 ,86 7.0 5 20 05 1s t M ari ne r Ban k 82 96 Newcare Heal th 5,9 00 .00 20 05 M & T Ban k 07 50 Newcare Deve lo pe r 40 ,04 7.4 6 20 07 Su sque ha nn a Ban k 43 32 Mr. So di po 71 ,42 0.4 8
Mr. So di po als o a rg ue s tha t h e d oe s n otha ve $1 ,40 0 o f in co m e fo r hi s t ax ab le y ear 2 00 5 t ha t i s at tri bu tabl e to a ch eckfor$1 ,40 0 c as he d dur in g 2 00 5 t ha t was drawn o n t he APGFCU acc ou ntwith a n a cco un t n um be r en di ng 10 00 th atMs
. So di po m ai nt ai ne d i n h er n am e. Fi na ll y , Mr. So di po arg ue s tha t h e d oe s n otha ve $1 0,0 00 of i nc om e fo r hi s ta xabl e y ear 2 00 6 t ha t i s at tri bu tabl e to a ch eckfor$1 0,0 00 m ad e p ay ab le to an d si gn edby him

th athe cas he d dur in g t ha t year an d t ha t was dra wn o n the M & T Ban k a cco un t wi th anacco un t n um be r en di ng 31 50 th atNewcare Heal th m ai nta in editit s n am e.- 15 -

[* 15 ] $1 0,0 00 cas he d c he ck , whi chMr. So di po di sp ut es are i nc lu di bl e in hi s in co m e. W ith re sp ectto hi s t ax ab le y ear 2 00 5, M r. So di po arg ue s tha t re sp on de nt
erre d i n i nc lu di ng inhi s i nc om e fo r th aty ear d ep os it s dur in g t ha t year to ta li ng (1 ) $5 ,90 0 i nt o t he 1s t M ari ne r Ban k a cco un t wi th anacco un t n um be r en di ng 82 96 th atNewcare Heal th m ai nt ai ne d i n i ts na m e an d (2 ) $4 0,0 47 .46 in to th e M & T Ban k a cco un t wi th anacco un t n um be r en di ng 07 50 th atNewcare Deve lo pe r m ai nta in edinit s n am e (co ll ect iv el y , Newcare d ep os it s) . As we und ers ta ndhi m , Mr. So di po is arg ui ng th atth e Newcar e d ep os it s ar e n otin cl ud ib le inhi s i nc om e be cau se th ey

are i nc om e o f th e res pe ct iv e Newcar e co rp or at io ns inwho se na m es th e acc ou nt s wer e m ai nt ai ne d. Th e o nl y ev id en ce tha t M r. So di po pro ffer edin
supp ort o f th atarg um en t i s h is owntes ti m on y on whi chwe are unwi ll in g t o re ly. W e h av e fo un d tha t M r. So di po ha d s ig na to ry au th or ity an d d om in io n a ndco nt ro l
ov er the 1s t M ari ne r Ban k a cco un t wi th anacco un t num be r en di ng 82 96 th at Newcare Heal th m ai nt ai ne d i n i ts na m e. Res po nd en t d et erm in edinth e n ot ic e th at Mr. So di po ha d s ig na to ry au th or it y ov er the M & T Ban k a cco un t wi th anacco un t
nu m be r en di ng 07 50 th atNewcare Deve lo pe r m ai nt ai ne d i n i ts na m e. Pet it io ne r of fere d n o e vi de nc e attri al th atest ab li sh es erro r in th atde te rm in at io n. Onth e reco rdbe fo re u s, we fi ndth atpe ti ti on er h as fai le d t o c arry his bu rd enof- 16 -

[* 16 ] es tabl is hi ng th atth e Newcar e d ep os it s ar e n otin cl ud ib le inhi s i nc om e fo r hi s t ax ab le y ear 2 00 5. W ith re sp ectto hi s t ax ab le y ear 2 00 5, M r. So di po als o a rg ue s tha t
res po nd en t erredinin cl ud in g i n h is in co m e fo r th aty ear ( 1) a ch eckfor$1 ,40 0
cas he d dur in g 2 00 5 t ha t was drawn o n t he APGFCU acc ou ntwith a n a cco un t
nu m be r en di ng 10 00 th atMs . Sod ip o m ai nt ai ne d i n h er n am e an d (2 ) $7 ,86 7.0 5
co ns is ti ng of c as h d ep os it s dur in g t ha t year in to , anddi vi de nd s cr ed it eddu rin g th aty ear t o, tha t ac co un t. As we und ers ta ndhi m , Mr. So di po is arg ui ng th atth e 8 $1 ,40 0 c as he d c he ck

an d t he APGFCU d ep os it s ar e n otin cl ud ib le inhi s i nc om e ev enth ou gh he ha d s ig na to ry au th or it y ov er the APGFCU acc ou ntinqu es ti on . Acco rd in g t o M r. So di po , th e d ep os it s i nt o t ha t ac co un t “be lo ng ” to Ms . Sod ip o
an d a re h er i nc om e. The o nl y ev id en ce tha t M r. So di po pro ffer edinsupp ort o f th atarg um en t i s h is owntes ti m on y an d M s. So di po ’s tes ti m on y onwhi chwe are un wil li ng to rel y . W e h av e fo un d t ha t M r. So di po ha d s ig na to ry au th or it y an d do m in io n a ndco nt ro l o ve r th e APGFCU ac co un t wi thanacco un t n um be r en di ng 10 00 th atMs . Sod ip o m ai nt ai ne d i n h er n am e. On the reco rdbe fo re u s, we fi nd Altho ug h dur in g M r. So di po ’s tax ab le y ear 2 00 5 h e cas he d ach eckfor 8 $1 ,40 0 drawnon th e APCFC U acco un t an d ato ta l o f $7 ,88 0 was de po si te d i nt o an d $ 37 .05 of d iv id en ds was e arn edon th atacco un t, o r a t ot al of $ 9,3 17 .05 , res po nd en t re du cedth atto ta l b y $5 0 andde te rm in edth aton ly $9,2 67 .05 is in cl ud ib le inMr. So di po ’s in co m e fo r th aty ear.- 17 -

[* 17 ] th atMr. So di po ha s fa il edto carry his burd enof e st ab li sh in g tha t the $1 ,40 0
cas he d c he ckan d t he APGFCU d ep os it s ar e n otin cl ud ib le inhi s i nc om e fo r hi s ta xabl e y ear 2 00 5. W ith re sp ectto hi s t ax ab le y ear 2 00 6, M r. So di po arg ue s tha t re sp on de nt
erre d i n i nc lu di ng inhi s i nc om e fo r th aty ear a$1 0,0 00 ch eckm ad e p ay ab le to an d si gn edby him

th athe cas he d a ndth atwas drawnon th e M & T Ba nkacco un t wi th
anacco un t n um

be r en di ng 31 50 th atNewcare Heal th m ai nt ai ne d i n i ts na m e. As
we un de rs ta ndMr. So di po ’s po si ti on , he i s cl ai m in g t ha t the $1 0,0 00 cas he d c he ck is no t “ in co m e, itwas the am ou ntgi ve n t o t he bo ardof d ire ct or s t o u se foracco m m od at io n a ndtra ve l ex pe ns es when pe ti ti on er an d h is ot he r di rect or s trav el [ed ] to Nig eri a in Sep t[e m

be r], 20 06 , to ov ers ee the ot he r co m pa ny affai rs (NEW CARE HEALTHSERVICES, LTD. NIGERIA)” as pa rt o f a b us in es s trip . The o nl y ev id en ce tha t M r. So di po pro ffer edinsupp ort o f th atcla im is hi s o wn t es ti m on y on whi chwe are u nwi ll in g t o re ly. On the reco rdbe fo re u s, we fi ndth atpe ti ti on er ha s fa il edto carry

hi s b ur de n o f es tabl is hi ng th atth e $ 10 ,00 0 c as he d c he ck is no t in cl ud ib le inhi s i nc om e fo r hi s t ax ab le y ear 2 00 6. W ith re sp ectto hi s t ax ab le y ear 2 00 7, M r. So di po arg ue s tha t re sp on de nt
erre d i n i nc lu di ng inhi s i nc om e fo r th aty ear d ep os it s dur in g t ha t year to ta li ng $7 1,4 20 .48 in to th e Su sque ha nn a Ban k a cco un t wi th anacco un t num be r en di ng- 18 -

[* 18 ] 43 32 th atMr. So di po m ai nt ai ne d i n h is na m e (Su sque ha nn a Ban k a cco un t 43 32 de po si ts ). As we und ers ta ndMr. So di po ’s po si ti on , he i s cl ai m in g t ha t tho se de po si ts are n otin cl ud ib le inhi s i nc om e fo r hi s t ax ab le y ear 2 00 7 b ecau se hi s

“ on ly sou rce o f in co m e is Newcare Hom e Heal th Serv ic es , Inc . [whi ch ] [s ]hut do wn o pe rat io n[ s] inOcto be r 20 06 .” The o nl y ev id en ce tha t M r. So di po pro ffer ed in supp ort o f th atcla im

is hi s o wn t es ti m on y

an d M s. So di po ’s tes ti m on y on whi ch
we are u nwi ll in g t o re ly. In a dd it io n t o t he bu si ne ss th atMr. So di po co nduc te d th ro ug h Newc are Hea lth, h e h adot he r bu si ne ss es th athe co nduc te d t hr ou ghot he r co m pa ni es , in cl ud in g C as t an d Newc are Dev el op er. Mo reo ve r, as we un de rs ta nd hi s t es ti m on y , Mr. So di po adm it te d t ha t Newca re Dev el op er was co nduc ti ng sal es op erat io ns aft er Newca re Heal th ceas edit s o pe rat io ns inOcto be r 20 06 . On th e reco rdbe fo re u s, we fi ndth atpe ti ti on er h as fai le d t o c arry his bu rd enof
es tabl is hi ng th atth e Su sque ha nn a Ban k a cco un t n um be r 43 32 de po si ts are n ot in cl ud ib le inhi s i nc om e fo r hi s t ax ab le y ear 2 00 7. On the reco rdbe fo re u s, we fi ndth atMr. So di po ha s fa il edto carry hi s bu rd enof e st ab li sh in g t ha t h e d oe s n otha ve th e unr ep orte d i nc om e th atrem ai ns at is su e fo r hi s t ax ab le y ears 20 05 , 20 06 , and20 07 , see supr a n ot e 4 , of $ 55 ,21 4.5 1, $1 0,0 00 , and$7 1,4 20 .48 , res pe ct iv el y .- 19 -

[* 19 ] W e tu rnne xtto th e 2 00 5 S ch edul e C-2 ex pe ns es at i ss ue . As we und ers ta nd Mr. So di po ’s po si ti on , he i s cl ai m in g t ha t h e is en ti tl edforhi s t ax ab le y ear 2 00 5 t o de du ctth os e ex pe ns es un de r se ct io n 1 62 (a) o r 16 7( a). Mr. So di po als o c la im s 9 th athe is en ti tl edto de du ctun de r on e o f th os e se ct io ns cert ai n S ch edul e C-2
ex pe ns es foreach of h is tax ab le y ears 20 06 an d 2 00 7. Mr. So di po di d n otpro fferat t ria l an y do cu m en tary

ev id en ce i n s up po rt o f hi s p os it io n t ha t h e is en ti tl edto de du ctall of t he 20 05 Sch edul e C-2 ex pe ns es at is su e an d c ert ai n S ch edul e C-2 ex pe ns es foreach of h is tax ab le y ears 20 06 an d 20 07 . In an effo rt t o e xp la in why he di d n otdo so , Mr. So di po co nt en ds th atth e Gov ern m en t s ei zedas p artof i ts in ve st ig at io n o f hi s h y dr oc od on e d is tri bu ti on act iv it ie s, an d d idno t re tu rn , th e d oc um en ts th athe arg ue s wo ul d h av e es tabl is he d hi s en ti tl em en t t o d educ t the cla im edSch edul e C-2 ex pe ns es foreachof t he y ears atis su e. Ass um in g a rg ue nd o t ha t the Gov ern m en t h adsei zedan d d idno t re tu rn
an y of M r. So di po ’s reco rd s, h e wou ldha ve be enall owe d, b utdi d n otatt em pt , to Sec. 1 62 (a) g en eral ly allo ws a d educ ti on forord in ary an d n eces sa ry 9 ex pe ns es pa idor i nc urreddu rin g t he tax ab le y ear i n c arrying on an y tra de or bu si ne ss . For c ert ai n e xp en se s o th erwi se de du ct ib le un de r se c. 16 2( a), s uc h a s ex pe ns es fortra ve l, m eal s, an d e nt ert ai nm en t, s ee s ec. 2 74 (d )(1 ) an d (2 ), a ta xp ay er m

us t al so sat is fy

th e subs ta nt iati on requi rem en ts setforth insec . 27 4( d) be fo re s uc h e xp en se s wi ll be all owe d a s d educ ti on s. Sec. 1 67 (a) a ll ows a de du ct io n fo r a rea so nabl e al lo wan ce fo r ex haus ti on , wear an d t ear, an d o bs ol es cen ce o f pr op erty us edina tr ad e o r bu si ne ss or h el d fo r th e p ro du ct io n o f in co m e.- 20 -

[* 20 ] in tro du ce o th er re li ab le ev id en ce i nt o t he reco rdto est ab li shhi s p os it io n t ha t he is en ti tl edto de du ctth e 2 00 5 S ch edul e C-2 ex pe ns es at i ss ue an d c ert ai n Sch edul e C-2 ex pe ns es for each of h is tax ab le y ears 20 06 an d 2 00 7. Th e un av ai labi li ty of Mr. So di po ’s reco rd s b ecau se of t he all eg edact io ns of the Gov ern m en t d oe s n otex cu se hi m fro m th e requi rem en t tha t h e es tabl is h t hr ou gh ot he r rel iabl e ev id en ce h is en ti tl em en t t o d educ t tho se cla im edex pe ns es . See Mal in ows ki v. Co m

m is si on er, 7 1 T.C. 1 12 0, 1 12 5 (1 97 9)
. On the reco rdbe fo re u s, we fi ndth atMr. So di po ha s fa il edto carry hi s bu rd enof e st ab li sh in g t ha t h e is en ti tl edto de du ctth e 2 00 5 S ch edul e C-2
ex pe ns es at i ss ue an d c ert ai n S ch edul e C-2 expe ns es foreach of h is tax ab le y ears 20 06 an d 2 00 7. W e ad dr es s n ex t M r. So di po ’s cla im th athe is en ti tl edforeach of h is ta xabl e y ears 20 06 an d 2 00 7 t o t wo d ep en de nc y ex em pt io ns fortwo ch il dr en (d ep en de nc y

ex em pt io ns at i ss ue ). In s up po rt o f th atcla im , Mr. So di po tes ti fie d i n a g en eral an d c on cl us ory

m an ne r th athe ha d t wo m in orch il dr enwho m he
supp orte d dur in g e ach of h is tax ab le y ears 20 06 an d 2 00 7. We are unwi ll in g t o rel y on th attes ti m on y . On the reco rdbe fo re u s, we fi ndth atMr. So di po ha s fa il edto carry hi s bu rd enof e st ab li sh in g h e is en ti tl edto th e d ep en de nc y ex em pt io ns at i ss ue .- 21 -

[* 21 ] W e co ns id er n ex t the frau d p en al ty und er s ect io n 6 66 3( a) tha t re sp on de nt de te rm in edwith re sp ectto Mr. So di po ’s tax ab le y ear 2 00 5. Se ct io n 6 66 3( a) im po se s a p en al ty equ al to 75 pe rcen t o f th e p orti on of a ny un de rp aym en t tha t i s at tri bu tabl e to frau d. Fo r pu rp os es of s ect io n 6 66 3( a), i f th e Co m m is si on er o f In te rn al Rev enue (Co m

m is si on er) e st ab li sh es th atany po rti on of a n u nd erp aym en t is attrib ut ab le to frau d, the en ti re u nd erp aym en t i s t o b e tr eat edas a ttrib ut ab le to frau d, ex cep t wi th res pe ctto any po rti on of t he un de rp aym en t tha t the tax pa y er es tabl is he s b y

a pr ep on de ran ce o f th e ev id en ce i s n otatt rib ut ab le to frau d. Se c. 66 63 (b ). In o rd er fo r th e fraudpe na lt y to ap pl y , th e Co m

mis si on er m

us t p ro ve by cl ear a ndco nv in ci ng ev id en ce, s ec. 7 45 4( a); Ru le 14 2( b) , th atanun de rp aym en t
ex is ts an d t ha t s om e p orti onof t ha t u nd erp aym en t i s at tri bu tabl e to frau d, e.g ., Nied rin gh au s v . Comm is si on er, 9 9 T.C. 2 02 , 21 0 (1 99 2)
. To p ro ve th e ex is te nc e o f anun de rp aym en t, the Co m m is si on er m ay

no t re ly
on a ta xp ay er’s fai lu re t o c arry his or h er b ur de n o f pr oo f with re sp ectto th e un de rlyin g d efi ci en cy . E.g., Park s v . Comm is si on er, 9 4 T.C. 6 54 , 66 0- 66 1 (1 99 0)
. The Co m m is si on er m

us t p ro ve on ly tha t an un de rp aym en t ex is ts , andno t the pr eci se am ou ntof t he un de rp aym en t. E.g., DiLe o v . Comm is si on er, 9 6 T.C. 8 58 , 87 3 (1 99 1) , aff’d, 9 59 F.2d16 (2dCir . 19 92 ). Whe n a n a ll eg at io n o f frau d i s in te rtwi ne d wi th reco ns tru ct edun rep orte d i nc om e, as itis inth e p res en t ca se , th e- 22 -

[* 22 ] Co m

m is si on er m ay

sat is fy th e b ur de n o f es tabl is hi ng anun de rp aym en t b y (1 ) pr ov in g ali ke ly sou rce o f th e unr ep orte d i nc om e o r (2 ) di sp ro vi ng th e no nt ax ab le so ur ce(s ) th atth e ta xp ay er al le ge s fo r th e unr ep orte d i nc om e. Park s v . Co m m is si on er, 9 4 T.C. at66 1. On the reco rdbe fo re u s, we fi ndth atres po nd en t h as est ab li sh edby clear
an d c on vi nc in g e vi de nc e a l ik el y so ur ce o f Mr. So di po ’s un rep orte d i nc om e fo r hi s t ax ab le y ear 2 00 5, n am el y , Mr. So di po ’s workas aph arm aci st . On th atreco rd , we fi ndth atres po nd en t h as est ab li sh edby clearan d c on vi nc in g e vi de nc e th at th ere was anun de rp aym en t o f ta x fo r Mr. So di po ’s tax ab le y ear 2 00 5. Inord er t o p ro ve frau du le ntin te nt , th e Co m m is si on er m

us t p ro ve by clear
an d c on vi nc in g e vi de nc e th atth e ta xp ay er i nt en de d t o e va de tax , whi chth e ta xp ay er b el ie ve d t o b e o win g, b y co nduc t i nt en de d t o c on ceal , m is le ad , or o th erwis e p rev en t the co ll ect io n o f su chtax . E.g., id . The ex is te nc e o f frau d i s a qu es ti on of f

actto be res ol ve d upo n c on si de rat io n o f th e en ti re re co rd . E.g., DiLeo v. Co m

mis si on er, 9 6 T.C. at87 4. Fraudis ne ve r pr es um edor i m pu te d a nd sh ou ldno t b e fo un d i n c irc um st an ces whi chcrea te at m os t o nl y a su sp ic io n. E.g., Pet zo ld t v . Commis si on er, 9 2 T.C. 6 61 , 69 9- 70 0 (1 98 9) . Direc t ev id en ce o f th e requi si te frau du le ntin te ntis sel do m av ai labl e. E.g., id . Con se qu en tl y , res po nd en t- 23 -

[* 23 ] m ay

pro ve frau d b y

cir cu m st an ti al ev id en ce. E.g., Ro wlee v. Co m mis si on er, 80 T.C. 11 11 , 11 23 (19 83 ). The co urts ha ve id en ti fie d anu m be r of so -cal le d b ad ge s o f frau d fr om whi chfrau du le ntin te ntm ay be in ferr ed , in cl ud in g (1 ) th e und ers ta te m en t o f in
co m e, (2 ) th e fai lu re t o m ai nt ai n a de qu at e rec or ds as r equi redby the Co de an d t he reg ul at io ns , (3) pro vi di ng in co m pl et e o r erro ne ou s i nf

orm at io n t o atax return pr ep areror b oo kk eep er, (4 ) de al in g i n c as h, (5 ) act s d es ig ne d t o c on ceal in co m e,
an d (6 ) en ga gi ng inil le ga l ac ti vi ty. See Br ad fo rdv. Co m m is si on er, 7 96 F.2d30 3, 30 7 (9 thCir . 19 86 ), aff’g T.C. Me m o. 1 98 4- 60 1; Ru arkv. Co m m is si on er, 4 49 F.2 d 3 11 , 31 2- 31 3 (9 th Cir . 19 71 ), aff’g p er cu riam T.C. Mem o. 1 96 9- 48 ; Nied rin gh au s v . Comm is si on er, 9 9 T.C. at21 1. Inad di ti on , a co nv ic ti on un de r se ct io n 7 20 6( 1) is a ba dg e o f frau d. Se e Mo rs e v . Comm is si on er, T.C. Mem o. 20 03 -3 32 , 20 03 WL 22 85 37 96 , at * 5, af f’d, 41 9 F .3d82 9 (8 th Cir . 20 05 ). Altho ug h n o s in gl e fac to r is ne ces saril y su ffi ci en t t o e st ab li sh frau d, the ex is te nc e of sev eral in di ci a co ns ti tu te s p ers ua si ve cir cu m st an ti al ev id en ce o f frau d. E.g., Pet zo ld t v . Commis si on er, 9 2 T.C. at70 0. The reco rdest ab li sh es th atpe ti ti on er (1 ) co m m it te d c ert ai n c rimes rel at in g to hi s h y dr oc od on e d is tri bu ti on act iv it ie s fo r whi chhe was c on vi ct ed ; (2 ) at te m pt edto co nc eal hi s i ll eg al act iv it ie s, as ev id en cedby his co nv ic ti on for- 24 -

[* 24 ] co ns pi racy to l au nd er a m on et ary in stru m en t; (3) un de rs ta te d h is in co m e fo r hi s t ax ab le y ear 2 00 5, an d (4 ) was co nv ic te d o f fi li ng a fal se tax return i n v io la ti on of sec ti on 72 06 (1 ) fo r hi s t ax ab le y ear 2 00 5. On the reco rdbe fo re u s, we fi ndth atres po nd en t h as est ab li sh edby clear
an d c on vi nc in g e vi de nc e th atpe ti ti on er i nt en de d t o e va de tax for hi s t ax ab le y ear 20 05 , whi chhe be li ev edto be owi ng , by co nduc t i nt en de d t o c on ceal , m is le ad , or ot he rwis e p rev en t the co ll ect io n o f su chtax . On th atreco rd , we fin d t ha t M r. So di po is li ab le forhi s t ax ab le y ear 2 00 5 fo r th e fraudpe na lt y un de r se ct io n 66 63 (a). W e tu rnfin al ly to the ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(1 ) an d (2 ) th at
res po nd en t d et erm in edforeach of M r. So di po ’s tax ab le y ears 20 06 an d 2 00 7. Tho se res pe ct iv e ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(1 ) an d (2 ) do no t ap pl y if th e res pe ct iv e fai lu res to fil e an d t o p ay are due to reas on ab le cau se , andno t wi ll
fu l n eg le ct . See s ec. 6 65 1( a)(1 ) an d (2 ). Res po nd en t b ears th e b ur de n o f pr oduc ti on with re sp ectto th os e ad di ti on s to tax . See s ec. 7 49 1( c); Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 -4 47 (20 01 ). To s at is fy res po nd en t’s b ur de n o f pr oduc ti on , res po nd en t m us t co m e fo rwardwith

“ su ffi ci en t ev id en ce i nd ic at in g t ha t i t i s ap pr op ria te to im po se ” th e ad di ti on s t o t ax atis su e. See Hi gb ee v . Commis si on er, 1 16 T.C. at 4 46 . Alth ou gh res po nd en t- 25 -

[* 25 ] be ars th e b ur de n o f pr oduc ti on with re sp ectto th os e ad di ti on s t o t ax , res po nd en t “ ne edno t i nt ro du ce ev id en ce re ga rd in g re as on ab le cau se * * * o r si mil ar p ro vi si on s. * * * [T] he tax pa y er b ears th e b ur de n o f pr oo f with re ga rdto th os e is su es .” See i d. Mr. So di po di d n otfil e a t ax return, an d d idno t p ay any tax , with re sp ectto each of h is tax ab le y ears 20 06 an d 2 00 7. Onth e rec or d b efo re u s, we fi ndth at
res po nd en t h as carr ie d re sp on de nt ’s burd enof p ro du ct io n u nd er s ect io n 7 49 1( c). W ith re sp ectto hi s fa il ur e to fil e a t ax return fo r eac h o f hi s t ax ab le y ears 20 06 an d 2 00 7, i t i s M r. So di po ’s po si ti on th atth atfai lure t o fi le foreach of tho se y ears was due to reas on ab le cau se , andno t due to wil lfu l n eg le ct . In s up po rt o f th atpo si ti on , Mr. So di po ass ert s tha t “ al l the do cu m en ts ne ed edwere s ei zedby the [G]ove rn m en t an d * * * th ere was a res tra in in g o rd er o n the acco un ta ntno t t o t al k to th e p et it io ne r.” Eve n i f th e Gov ern m en t h adsei zedMr. So di po ’s reco rd s, the
m ere u nava il ab il ity

of r eco rd s i s n otreas on ab le cau se forfai li ng to fil e a t ax return. Se e Thr owe r v. C omm is si on er, T.C. Mem o. 2 00 3- 13 9, 2 00 3 WL 21 10 76 75 , at * 5. On the reco rdbe fo re u s, we fi ndth atMr. So di po ha s fa il edto carry hi s bu rd enof e st ab li sh in g t ha t h is fai lu re t o fi le a ta x re tu rnfor each of h is tax ab le y ears 20 06 an d 2 00 7 was du e to reas on ab le cau se , andno t due to wil lfu l n eg le ct .- 26 -

[* 26 ] W ith re sp ectto hi s fa il ur e to pa y tax foreachof h is tax ab le y ears 20 06 an d 20 07 , as we u nd ers ta ndMr. So di po ’s po si ti on , he a rg ue s tha t tha t fa il ur e to pa y was th e res ul t o f hi s i nabi li ty, fo r th e rea so ns di sc us se d abo ve , to fil e a t ax return fo r eac h o f th os e y ears . Evenif we h adacce pt edMr. So di po ’s arg um en t
co nc ern in g h is fai lu re t o fi le , he wo ul d n otha ve be enex cu se d fr om pa y in g h is tax fo r eac h o f hi s t ax ab le y ears 20 06 an d 2 00 7. Se e Wrigh t v . Comm is si on er, T.C. Mem o. 2 01 3- 12 9, 2 01 3 WL 21 56 55 4, at*6
. On the reco rdbe fo re u s, we fi ndth atMr. So di po ha s fa il edto carry hi s bu rd enof e st ab li sh in g t ha t h is fai lu re t o p ay hi s t ax foreachof h is tax ab le y ears 20 06 an d 2 00 7 was du e to reas on ab le cau se , andno t due to wil lfu l n eg le ct . On the reco rdbe fo re u s, we fi ndth atMr. So di po ha s fa il edto carry hi s bu rd enof e st ab li sh in g t ha t h e is no t l iabl e fo r eac h o f hi s t ax ab le y ears 20 06 an d 20 07 forth e ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(1 ) an d (2 ). W e h av e co ns id eredall of t he pa rti es ’ res pe ct iv e co nt en ti on s an d a rg um en ts th atare n otdi sc us se d h erei n, an d we f in d t he m to be witho utm eri t, i rrel ev an t,
an d/ orm oo t. To re fle ctth e fo reg oi ng an d t he co nc es si on s o f th e p art ie s, Deci si on wil l b e en te redun de r Ru le 15 5.