Title: Khalaf v. Dept. of Rev.
Citation: N/A
Docket Number: S067721
State: Oregon
Issuer: Oregon Supreme Court
Date: September 30, 2021

No. 38	
September 30, 2021	
563
IN THE SUPREME COURT OF THE
STATE OF OREGON
Rami KHALAF,
Plaintiff-Appellant,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Defendant-Respondent.
(TC 5347) (SC S067721)
En Banc
On appeal from the Oregon Tax Court.*
Robert T. Manicke, Judge.
Submitted on the briefs May 5, 2021.
Rami Khalaf filed the brief pro se.
Erin K. Galli, Assistant Attorney General, Salem, filed 
the brief for respondent. Also on the brief were Ellen F. 
Rosenblum, Attorney General; Benjamin Gutman, Solicitor 
General; and Kristen Gallino, Assistant Attorney General.
NELSON, J.
The judgment of the Tax Court is affirmed.
______________
	
*  Unpublished Tax Court opinion, issued February 5, 2020.
564	
Khalaf v. Dept. of Rev.
Cite as 368 Or 563 (2021)	
565
	
NELSON, J.
	
Rami Khalaf (“taxpayer”) was in the business of 
buying products for customers in the United Arab Emirates, 
primarily all-terrain vehicles (ATVs). He sought to claim 
certain business deductions on his 2013 income tax return. 
As relevant here, those included travel expenses that tax­
payer had incurred on trips to the Emirates, and the cost 
of a dune buggy that taxpayer had purchased for use as a 
demonstration model. The Department of Revenue (depart­
ment) rejected those deductions. The Tax Court agreed 
with the department on those points: It held that the travel 
expenses were not deductible, because they were not suf­
ficiently documented, and that the dune buggy was not 
deductible because it counted as inventory. Khalaf v. Dept. 
of Rev., TC 5347 (unpublished opinion issued Feb 5, 2020). 
Taxpayer has appealed. We affirm.
I.  FACTS
A.  General
	
Taxpayer operated a sole proprietorship under the 
business name “Khalaf Motors.” Taxpayer’s business was 
“facilitating” sales between businesses in the United States 
and customers in the Emirates. In general, an Emirates 
customer would contact taxpayer seeking a particular item. 
Taxpayer would locate the item and negotiate the purchase 
price, including shipping. The customer would wire funds 
for purchase, and then taxpayer would ship the item. The 
primary sale items were ATVs—often referred to as dune 
buggies.
	
From this point, we will separately set out the rel­
evant facts as to the two claimed deduction, and the Tax 
Court’s rulings on each claim.
B.  Dune Buggy
	
In 2013, taxpayer purchased a dune buggy like the 
ones he was selling to his customers in the Emirates. That 
dune buggy was intended to be a “prototype and demonstra­
tion unit” to stimulate his sales. Taxpayer used the dune 
buggy for advertising purposes, and he deliberately kept the 
mileage low. Later, taxpayer unsuccessfully tried to sell the 
dune buggy on Craigslist.
566	
Khalaf v. Dept. of Rev.
	
In his 2013 tax return, taxpayer claimed a deduction 
of $7,280 in depreciation on that dune buggy. The depart­
ment denied the deduction on the ground that it was a demo/
floor model, and thus inventory, which was not depreciable.
	
Taxpayer challenged the department’s denial before 
the Tax Court. The court agreed with the department and 
concluded that the vehicle was not a depreciable business 
asset. Inventory, the court explained, does not qualify for a 
depreciation deduction. Whether an asset is inventory is a 
factual question on which taxpayer had the burden of proof. 
Demonstration units are generally inventory and not depre­
ciable. If, however, the dune buggy was being consumed 
through use in such business activities as transportation, it 
would be depreciable.
	
In this case, the court found that the dune buggy 
constituted inventory. As noted, taxpayer had admitted that 
it was a demonstration model, that he had kept the mileage 
low, and that he had later attempted to sell it. Conversely, 
taxpayer did not show that the dune buggy was being con­
sumed for business purposes (other than as a demonstrator).
	
The Tax Court also rejected taxpayer’s alternative 
argument that the dune buggy was depreciable as a proto­
type for research and development. Pursuant to an Internal 
Revenue Service Treasury Regulation, 26 CFR §  1.174-2(a)
(6), “experimental expenditures” excludes expenditures for
“[a]dvertising or promotions.” As noted, taxpayer had tes­
tified that he had bought the dune buggy for promotional 
purposes and used it for those purposes.
C.  Business Trips to Emirates
	
Taxpayer traveled to the Emirates three times 
in 2013: on or about January 1-8; April 10 to May 15; and 
August 7-18.1 The only travel expenses at issue are pay­
ments that taxpayer had made to his sisters related to that 
	
1  On appeal, the department appears to assert that there were only two trips. 
Our review of the trial transcript, however, shows that the department had con­
ceded that taxpayer made three trips to the Emirates in 2013 and on the dates 
that taxpayer had claimed. Regardless, neither the exact number of trips nor 
their dates are necessary to our disposition here. 
Cite as 368 Or 563 (2021)	
567
travel.2 Specifically, taxpayer claimed a $7,000 deduction for 
a payment that he allegedly made to rent a vehicle from one 
sister, and $3,150 for a payment that he allegedly made to 
rent an apartment in Dubai from another sister.
	
The department denied the deductions. It did not 
dispute that taxpayer paid his sisters those amounts in 
2013. However, the department concluded that taxpayer had 
failed to show that those payments were primarily for busi­
ness purposes.
	
The Tax Court also agreed with the department on 
that point. Noting that taxpayer has the burden of proof, the 
court explained that a taxpayer is not permitted to claim a 
deduction based only on his or her own testimony. The tax­
payer must substantiate the deduction with additional evi­
dence: specifically, detailed and contemporaneous records.
	
The Tax Court then turned to the substantiating 
evidence submitted by taxpayer. As an initial matter, the 
court excluded from the evidence two receipts that taxpayer 
had offered from his sisters (originals in Arabic and with 
English translations). The receipts stated that the payments 
were for taxpayer’s business. The court concluded that the 
receipts were hearsay and not subject to an exception.
	
The court then concluded that the remaining evi­
dence was insufficient. Taxpayer’s travel log failed to show 
that the entries had been made at the time the expenses 
were incurred. Taxpayer failed to introduce any evidence to 
corroborate his claim that the apartment was used for busi­
ness purposes, and he did not keep a mileage log document­
ing his use of the vehicle. The copies of the apartment lease 
and the rental contract, the court concluded, were insuffi­
cient to substantiate his testimony.
	
Finally, the Tax Court held in the alternative that 
taxpayer had faced an independent evidentiary burden, 
because he had made the payments to his sisters. As pay­
ments to family members, the court explained, the transfers 
were presumed to be nondeductible gifts. Taxpayer had not 
submitted any evidence to show that the amounts that he 
	
2  There were no issues regarding other travel expenses to the Emirates 
before the Tax Court.
568	
Khalaf v. Dept. of Rev.
had paid his sisters represented fair market value for the 
car or the apartment.
II.  DISCUSSION
A.  Burden of Proof; Standard of Review
	
In the Tax Court, taxpayer—as the party chal­
lenging the department’s ruling—had the burden to show, 
by a preponderance of the evidence, that he was entitled 
to the deduction he claimed. See ORS 305.427 (both before 
Tax Court and on appeal, “the party seeking affirmative 
relief” has burden of proof by “a preponderance of the evi­
dence”); Baisch v. Dept. of Rev., 316 Or 203, 211, 850 P2d 
1109 (1993) (“A taxpayer seeking relief from a decision of the 
Department denying a deduction bears the burden of show­
ing by a preponderance of the evidence that the deduction is 
allowable.”).
	
We review the Tax Court’s findings to determine 
whether they are supported by substantial evidence. ORS 
305.445 provides that this court’s review of a Tax Court 
decision “shall be limited to * 
* 
* lack of substantial evidence 
in the record to support the tax court’s decision or order.” We 
pause briefly to explain that standard.
	
Although this court has not previously addressed 
the meaning of “substantial evidence” in the context of Tax 
Court review, it is a term of art drawn from administra­
tive law. “Substantial evidence” was first applied to Tax 
Court review by the legislature in 1995, replacing the prior 
functional directive that this court would review the facts 
de novo. Or Laws 1995, ch 650, § 25; see Delta Air Lines, 
Inc. v. Dept. of Rev., 328 Or 596, 600-01, 984 P2d 836 (1999) 
(discussing prior standard and change in law). In 1995, 
“substantial evidence” review was widely used in review of 
administrative rulings. ORS 183.482(8)(c) (1995) provided 
in part, as it does today:
“The court shall set aside or remand the [agency] order if 
the court finds that the order is not supported by substan­
tial evidence in the record. Substantial evidence exists to 
support a finding of fact when the record, viewed as a whole, 
would permit a reasonable person to make that finding.”
(Emphasis added.)
Cite as 368 Or 563 (2021)	
569
	
Because the term “substantial evidence” had a well-
established legal meaning when the legislature adopted 
it, we presume that the legislature intended this court to 
apply that meaning as the standard to review Tax Court 
decisions. See, e.g., Ann Sacks Tile and Stone, Inc. v. Dept. 
of Rev., 352 Or 380, 386, 287 P3d 1062 (2012) (“When the 
words in a statute have a well-defined legal meaning, we use 
that meaning in interpreting the statute.”). When reviewing 
the Tax Court’s findings of fact, then, we consider whether 
“the record, viewed as a whole, would permit a reasonable 
person to make that finding.”
	
We review the Tax Court’s conclusions of law for 
errors of law. ORS 305.445 (Supreme Court reviews Tax 
Court’s legal conclusions for “errors * 
* 
* of law”); see also 
Village at Main Street Phase II v. Dept. of Rev., 356 Or 
164, 168-69, 339 P3d 428 (2014) (this court reviews Tax 
Court decisions only for errors of law or lack of substantial 
evidence).
	
In this case, the controlling law is federal, rather 
than state. ORS 316.007(1) provides that the legislature 
intended, “insofar as possible,” to “[m]ake the Oregon per­
sonal income tax law identical in effect to the provisions of 
the Internal Revenue Code relating to the measurement of 
taxable income of individuals[.]” Pursuant to that statute, 
“we apply federal tax laws and federal court interpretations 
of those laws in resolving the issues raised by taxpayer[ 
].” 
Miller v. Dept. of Rev., 327 Or 129, 135, 958 P2d 833 (1998).
	
With that background, we now turn to the specific 
deductions at issue in this matter.
B.  Dune Buggy Depreciation
	
Federal law generally permits a taxpayer to take a 
deduction for depreciation of “a reasonable allowance for the 
exhaustion, wear[,] and tear (including a reasonable allow­
ance for obsolescence)” of “property used in the trade or busi­
ness.” 26 USC § 167(a)(1). Taxpayer claimed the deduction 
for the dune buggy pursuant to 26 USC section 179(a), which 
permits a taxpayer to “elect (subject to certain limitations) 
to treat the cost of any ‘section 179 property’ as a current 
expense in the year such property is placed in service, rather 
than depreciating the cost of the property over a number of 
570	
Khalaf v. Dept. of Rev.
years.” Hayden v. Commissioner, 204 F3d 772, 773 (7th Cir 
2000) (footnote omitted).
	
It is not disputed that, if the legal conditions were 
met, the dune buggy potentially would be deductible under 
section 179. However, under treasury regulations issued by 
the Internal Revenue Service, “[t]he  allowance [for depre­
ciation of tangible property] does not apply to  invento­
ries or stock in trade[.]” 26 CFR § 1.167(a)-2. The question is 
whether the dune buggy was inventory.
	
For purposes of federal law, “inventory” is “property 
that is held for sale.” Grant Oil Tool Co. v. United States, 
180 Ct Cl 620, 632, 381 F2d 389, 397 (1967) (emphasis omit­
ted); see Galedrige Const., Inc. v. C.I.R., 73 TCM (CCH) 2838, 
1997 Tax Ct Memo LEXIS 272, *29 (TC 1997) (same). To 
determine whether property is inventory, we thus consider 
“the purpose for which the property is held.” Latimer-Looney 
Chevrolet, Inc. v. Commissioner, 19 TC 120, 125 (1952).
	
In this case, taxpayer is primarily in the business of 
selling ATVs, and the vehicle at issue is of the type that tax­
payer regularly sells: a dune buggy. The Tax Court accord­
ingly looked at analogous federal decisions regarding when 
automobiles used by an auto dealer are or are not deductible.
	
Federal law presumes that an automobile is inven­
tory when held by a business that is regularly engaged in 
the buying and selling of those autos. That presumption 
can be rebutted, however. As the Fifth Circuit explained, 
an auto dealer may deduct depreciation on vehicles that had 
been originally purchased as inventory, if the dealer is con­
suming the vehicle by using it for business transportation. 
On the other hand, a vehicle is inventory (and not deprecia­
ble) when the auto dealer uses the vehicle to encourage sales 
of identical vehicles:
“When an automobile dealer buys new automobiles for sale, 
but thereafter takes them out of inventory and puts them 
to the use for which an automobile is intended in the hands 
of its ultimate consumer, that is, transporting personnel, 
and commits them over their reasonable useful life to that 
purpose in the operation of his business, the mere fact that 
he is in the automobile selling business does not deprive 
him of the right to depreciate such automobiles over their 
Cite as 368 Or 563 (2021)	
571
useful life in his hands * 
* 
*. * 
* 
* On the other hand, where 
such a dealer buys new cars for sale, puts them into inven­
tory, later removes them temporarily to be used by com­
pany officials and salesmen whose primary interest is to 
stimulate sales of all the dealer’s cars, including these very 
cars in issue, we conclude that under the ordinary meaning 
of the words used in the statute the ‘primary’ purpose for 
which the dealer holds the cars during the entire holding 
by it is for sale to its customers in the ordinary course of 
its business.”
Duval Motor Co. v. Commissioner, 264 F2d 548, 551-52 (5th 
Cir 1959) (footnote omitted). Cf. Latimer-Looney Chevrolet, 
Inc., 19 TC at 126 (finding that the auto dealer had shown 
that the automobiles at issue were not inventory).
	
The Internal Revenue Service has summarized the 
case law in a revenue ruling that expressly frames the dis­
tinction as a presumption:
	
“A taxpayer engaged in the trade or business of selling 
motor vehicles is presumed to hold all such vehicles primar­
ily for sale to customers in the ordinary course of the tax­
payer’s trade or business. To overcome this presumption, 
it must be clearly shown that the motor vehicle was actu­
ally devoted to use in the business of the dealer and that 
the dealer looks to consumption through use of the vehicle 
in the ordinary course of business operation to recover the 
dealer’s cost. A vehicle is not property used in the business 
if it is merely used for demonstration purposes, or tempo­
rarily withdrawn from stock-in-trade or inventory for busi­
ness use.”
Rev Rul 75-538, 1975-2 CB 34, 1975 IRB LEXIS 99, *3.3
	
The Tax Court’s finding that the dune buggy was 
inventory was based on the purpose for which the dune 
	
3  The parties have not addressed the precedential value of revenue rulings. 
It appears that they are entitled to at least some deference as an agency interpre­
tation of the underlying statutes and rules:
“Although a revenue ruling does not have the force and effect of Treasury 
Department Regulations, see 26 CFR § 601.601(d)(2)(v)(d), it does constitute 
‘an official interpretation by the Service,’ id. § 601.601(d)(2)(i)(a). Accordingly, 
the Supreme Court and virtually all of the Circuits have indicated that reve­
nue rulings are entitled to some degree of deference.”
Telecom USA, Inc. v. United States, 192 F3d 1068, 1072-73 (DC Cir 1999), cert den, 
529 US 1123 (2000) (footnote omitted).
572	
Khalaf v. Dept. of Rev.
buggy was held, and thus it was a finding of fact. Taxpayer 
does not argue that the Tax Court used an incorrect legal 
standard; he focuses on the facts regarding the dune buggy 
and its role in his business. Accordingly, we review the Tax 
Court’s finding for whether it is supported by substantial 
evidence: that is, whether “the record, viewed as a whole, 
would permit a reasonable person” to find that the dune 
buggy was inventory.
	
Some facts do support taxpayer’s position that the 
dune buggy was not inventory and thus should be depre­
ciable. To begin with, it appears uncontested that taxpayer 
does not carry an inventory of ATVs like the dune buggy. As 
noted, taxpayer’s business was to take orders from custom­
ers in the Emirates who would send the negotiated purchase 
price, and only then would taxpayer purchase a specific 
ATV for that customer. With this dune buggy alone, tax­
payer financed the purchase himself. That is evidence that 
the dune buggy purchase should not be treated as identical 
to an auto dealer who takes a vehicle out of the dealership’s 
inventory for use by the dealership.
	
Taxpayer notes that he offered the dune buggy for 
sale on Craigslist after a year. The attempted sale cuts both 
ways, however.
	
On the one hand, it appears uncontested that tax­
payer did not sell dune buggies domestically at all. His 
efforts to sell this dune buggy over Craigslist in this country 
thus would be some evidence to support his contention that 
the dune buggy was not inventory.
	
On the other hand, taxpayer’s attempt to sell the 
dune buggy just one year after its purchase is consistent 
with the conclusion that the dune buggy was inventory, even 
if just a single item. As noted, “inventory” is defined as prop­
erty held for sale, and taxpayer attempted (albeit unsuc­
cessfully) to sell the dune buggy. That would support the 
Tax Court’s finding that the dune buggy was nondeductible 
inventory.
	
Moreover, other evidence also supported the Tax 
Court’s finding that the dune buggy was inventory, and thus 
not deductible. The dune buggy was a demonstrator model, 
Cite as 368 Or 563 (2021)	
573
which is treated as inventory. “A vehicle is not property used 
in the business if it is merely used for demonstration pur­
poses[.]” Rev Rul 75-538; see also Duval Motor Co., 264 F2d 
at 552 (concluding that a car used “to stimulate sales of all 
the dealer’s cars” is inventory held for sale).
	
Taxpayer’s contention that he deliberately kept 
the mileage low on the dune buggy also supports the Tax 
Court’s finding that taxpayer did not expect to recover the 
cost of the dune buggy by “consumption through use of the 
vehicle in the ordinary course of business operation.” Rev 
Rul 75-538. It shows that taxpayer had not put the dune 
buggy “to the use for which an automobile is intended in the 
hands of its ultimate consumer, that is, transporting per­
sonnel,” and that he did not “commit[ 
] [it] over [its] reason­
able useful life to that purpose.” Duval Motor Co., 264 F2d 
at 551. Finally, taxpayer’s admitted intention to keep the 
mileage low is consistent with an intention to sell the dune 
buggy from the outset.
	
In conclusion, the record, viewed as a whole, would 
permit a reasonable factfinder to find that the dune buggy 
was inventory, and thus the Tax Court’s finding was sup­
ported by substantial evidence. Because the dune buggy 
was inventory, it was not deductible under 26 USC section 
179. We affirm the Tax Court on that question.4
C.  Business Travel Expenses
	
As noted, taxpayer contends that the Tax Court 
erred by disallowing business expense deductions for his 
payment of $7,000 to rent a vehicle in Dubai from one sister, 
as well as his payment of $3,150 to rent an apartment in 
Dubai from another sister. We affirm the Tax Court on the 
	
4  Taxpayer alternatively argues that the dune buggy should be treated 
as purchased for research and development, and therefore deductible under 
26 USC section  174(a)(1) (allowing deduction for “research or experimental 
expenditures”). The Tax Court rejected that argument, because “experimen­
tal expenditures” under section 174 excludes expenditures for advertising 
and marketing. See 26 CFR §  1.174-2(a)(6)(v) (“The term research or exper­
imental expenditures  does not include expenditures for * 
* 
* [a]dvertising or 

promotions[.]”). 
	
We agree with the Tax Court. Taxpayer’s own brief in this court specifi­
cally admits that the dune buggy was intended for advertising. Taxpayer does 
not make any argument that the law would place the dune buggy outside that 
exclusion.
574	
Khalaf v. Dept. of Rev.
ground that taxpayer failed to rebut the presumption that 
his transfers to his sisters were gifts.
	
As a preliminary matter, gifts are generally not 
deductible. See 26 USC § 274(b)(1) (“No deduction shall be 
allowed under section 162 [authorizing deduction for ordi­
nary and necessary expenses incurred in carrying on trade 
or business] * 
* 
* for any expense for gifts made directly or 
indirectly to any individual * 
* 
*[.]”).
	
Transfers to family members are presumed to be 
gifts, as explained in a decision of the United States Tax 
Court:
	
“Transactions within a family group are subject to spe­
cial scrutiny in order to determine if they are in economic 
reality what they appear to be on their face. The presump­
tion is that a transfer between closely related parties is a 
gift.”
Estate of Reynolds v. Commissioner, 55 TC 172, 201 (1970) 
(internal quotation marks and citations omitted). By contrast,
“ 
‘[gifts] embrace * 
* 
* sales, exchanges, and other disposi­
tions of property for a consideration to the extent that the 
value of the property transferred by the donor exceeds the 
value in money or money’s worth of the consideration given 
therefor. However, a sale, exchange, or other transfer of 
property made in the ordinary course of business (a trans­
action which is bona fide, at arm’s length, and free from 
any donative intent), will be considered as made for an ade­
quate and full consideration in money or money’s worth.’ 
”
Stern v. United States, 436 F2d 1327, 1329 (5th Cir 1971) 
(regarding transactions subject to gift tax (quoting Treas 
Reg § 25.2512-8 (date))).
	
Taxpayer’s payments were made to close family 
members: his sisters.5 Those payments are thus presumed 
to be gifts unless taxpayer presented sufficient evidence to 
rebut that presumption. We conclude that he did not. As the 
	
5  Taxpayer contends that his sisters were “business associates.” He admitted 
at trial that he does not employ them. He did not offer any evidence to show that 
they, in fact, qualified as “business associates.” See 26 CFR § 1.274-2(b)(2)(iii) 
(defining term). His assertion that they were business associates is apparently 
based on his having paid them for the apartment and car. That assumes what 
needs to be proved: that the transfers were for business purposes and at fair 
market value, rather than a gift.
Cite as 368 Or 563 (2021)	
575
Tax Court noted, taxpayer did not present any evidence of 
the fair market value of either renting a car or leasing an 
apartment in Dubai. It may have been financially prudent 
for him to make those expenditures, as he testified. But it is 
also possible that he overpaid his sisters as a way to make 
a gift to them. The fact that the sisters, and not taxpayer, 
rented the apartment and purchased the car is consistent 
with taxpayer having made them such a gift.6
	
Furthermore, the Tax Court could not determine 
whether or to what extent the payments were for legitimate 
business expenses. Although taxpayer testified at trial that 
he had driven the car while in Dubai, he did not identify any 
customer meeting for which he had needed to drive the car.7 
Similarly, taxpayer’s travel log does not show the places of 
any of his meetings with customers. Accordingly, taxpayer 
offered no evidence that he had needed the auto for even a 
single business meeting.
	
As for the apartment, the rental contract submit­
ted by taxpayer shows on its face that the apartment rental 
period began on May 1, 2013. Taxpayer thus could not have 
stayed in the apartment for any part of his first 2013 trip, 
which was in January, or the first half of his second trip 
(from April 10 to May 15). The disconnect between taxpay­
er’s travel dates and the actual apartment rental dates fur­
ther undermines any conclusion that the amounts trans­
ferred to that sister were for fair market value.
	
Taxpayer had attempted to introduce into evidence 
the translated receipts from his sisters, to show that the 
transfers were for a business purpose. As noted, the Tax 
Court sustained the department’s objection to those receipts, 
so they were not accepted into evidence. We find no error in 
the Tax Court’s holding.8 And, even if the receipts had been 
admitted, they would not have shown that the amount 
	
6  Taxpayer testified that the contracts were in his sisters’ names because 
he could not lawfully rent an auto or apartment in his own name, not being an 
Emirates resident. Even if that is true, taxpayer could still have given his sisters 
a gift.
	
7  Indeed, taxpayer testified that the apartment was also an office for meeting 
with customers.
	
8  Taxpayer objects to the Tax Court ruling, but he does not allege any errors 
in the Tax Court’s discussion of hearsay law. We briefly review the law here.
576	
Khalaf v. Dept. of Rev.
taxpayer paid his sisters was fair market value for the car 
or apartment rental.
III.  CONCLUSION
	
The issues presented to us on appeal are factual, 
and we review the Tax Court’s findings for substantial evi­
dence. For the reasons discussed, we conclude that substan­
tial evidence supported the Tax Court’s finding that the 
dune buggy was inventory, and so it was not deductible. We 
also conclude that substantial evidence supported the Tax 
Court’s finding that the evidence presented by taxpayer was 
insufficient to rebut the presumption that his transfers to 
his sisters were gifts, and so those amounts could not be 
deducted as business travel expenses.
	
The judgment of the Tax Court is affirmed.
	
The Oregon Evidence Code (OEC) applies to proceedings before the Tax 
Court. See OEC 101(1)(a) (OEC “applies to all courts in this state” except as 
specifically listed). The OEC defines hearsay as a statement made by a declar­
ant, other than while testifying at trial or hearing, that is “offered in evidence 
to prove the truth of the matter asserted.” OEC 801(3). Here, the sisters were 
declarants. See OEC 801(2) (defining “declarant” as “a person who makes a state­
ment”). The receipts contain the sisters’ statements. See OEC 801(1)(a) (defining 
“statement” to include “[a]n oral or written assertion”). The sisters did not make 
those statements while testifying at a trial or a hearing. And taxpayer offered 
the receipts to prove the truth of the sisters’ statements—that he had, in fact, 
made the transfers for a business purpose. 
	
Taxpayer does not argue that the statements were admissible under any of 
the hearsay exceptions set out in OEC 801, OEC 803, or OEC 804. 
	
Accordingly, we affirm the Tax Court’s ruling excluding the affidavits.