Court Opinion

ID: 9368015
Source: CourtListenerOpinion
Date Created: 2023-02-02 18:00:49.438617+00
Date Added: 2024-06-11T17:16:05.195024
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        FEB 2 2023
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

JOSEF HAGHNAZARZADEH;                           No.    21-71390
CATHERINE Y. HAGHNAZARZADEH,
                                                Tax Ct. No. 27031-17
                Petitioners-Appellants,

 v.                                             MEMORANDUM*

COMMISSIONER OF INTERNAL
REVENUE,

                Respondent-Appellee.

                           Appeal from a Decision of the
                             United States Tax Court

                    Argued and Submitted November 18, 2022
                              Pasadena, California

Before: WARDLAW and W. FLETCHER, Circuit Judges, and KENNELLY,**
District Judge.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable Matthew F. Kennelly, United States District Judge for
the Northern District of Illinois, sitting by designation.
      Josef and Catherine Haghnazarzadeh appeal the decision of the United States

Tax Court sustaining the Internal Revenue Service’s (IRS’s) tax deficiency

calculations, excluding their accountant’s testimony at trial, and denying their

motion for reconsideration. We have jurisdiction under 26 U.S.C. § 7482(a)(1). We

affirm.

      1. Sustaining the IRS's Deficiency Determination

      We review the Tax Court’s factual determinations—such as those contained

in its post-trial findings sustaining the Commissioner’s deficiency determinations—

for clear error. SNJ Ltd. v. Comm’r, 28 F.4th 936, 941 (9th Cir. 2022) (quotation

marks omitted).

      When the taxpayer’s records are inadequate, the Commissioner of Internal

Revenue can “substantiate the charge of unreported income . . . by showing [the

taxpayer’s] . . . bank deposits.” Weimerskirch v. Comm’r, 596 F.2d 358, 362 (9th

Cir. 1979).   The taxpayer then bears the burden of proving that the IRS’s

determination of underreported income is incorrect. Gardner v. Comm’r, 845 F.3d

971, 974 (9th Cir. 2017). The Tax Court did not clearly err in finding that the

Haghnazarzadehs failed to rebut this presumption with respect to the $327,000,

$710,000, and $335,000 deposits.

      Regarding the $327,000 and the $710,000 deposits, the Commissioner

conceded that both are nontaxable and treated the deposits accordingly in its

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analysis. The Haghnazarzadehs’ insistence that these amounts were not ultimately

subtracted from their taxable income in the Commissioner’s Rule 155 computation

lacks support from the record. See Rules of Practice of the United States Tax Court.

From the Haghnazarzadehs’ total gross deposits, the IRS subtracted $852,000 in

transfers, which included the $710,000 and $939,994 in non-taxable deposits, which

included the $327,000.

      Regarding the $335,000 deposit, the record does not substantiate the

Haghnazarzadehs’     claim   that   the   funds   originated   from   one   of   Mr.

Haghnazarzadeh’s other accounts and had already been taxed accordingly. The Tax

Court may disregard testimony if it is “uncorroborated by documentary evidence or

the testimony of disinterested persons.” Factor v. Comm’r, 281 F.2 100, 111 (9th

Cir. 1960). The Haghnazarzadehs did not present any other evidence to rebut the

presumption that this deposit is evidence of income.

      It is true, as the Haghnazarzadehs note, that a taxpayer should be taxed only

on her gains from the sale of the property, defined as “excess amount realized” from

the property “over the adjusted basis.” 26 U.S.C. § 1001(a). But the taxpayer bears

the burden of proving her cost basis. O’Neill v. Comm’r, 271 F.2d 44, 50 (9th Cir.

1959). Regarding the $1,556,000 deposit from the sale of real property and the

$1,339,000 deposit from the sale of a promissory note, the Haghnazarzadehs failed

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to present evidence of their cost basis at trial. The Tax Court therefore did not clearly

err in treating these two deposits as taxable.

      In sum, the Tax Court did not commit clear error in sustaining the

Commissioner’s deficiency determination.

      2. Excluding Boodaie’s Testimony

      “The Tax Court’s decision to exclude evidence is reviewed for an abuse of

discretion.” Kalgaard v. Comm’r, 764 F.2d 1322, 1323 (9th Cir. 1985). To reverse

based on an evidentiary ruling, we must also conclude that the Tax Court’s error was

prejudicial. McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1032 (9th Cir. 2003).

      The Tax Court did not abuse its discretion in excluding the Haghnazarzadehs’

accountant, Joseph Boodaie, from testifying at trial. The Haghnazarzadehs failed to

comply with the Tax Court’s five pretrial orders requiring the parties to disclose their

witnesses and their anticipated testimony in a pretrial memorandum. Nor did the

Haghnazarzadehs provide sufficient proof that they were prejudiced by the ruling.

Moreover, Tax Court Rule 24(g)(2)(A) prohibits a taxpayer’s counsel from both

representing the taxpayer at trial and serving as a necessary witness.

      Pro se litigants, even if they are only pro se by circumstance, are still expected

to abide by the rules of the court in which they litigate. See e.g., Carter v. Comm’r,

784 F.2d 1006, 1008 (9th Cir. 1986). Moreover, a court has broad discretion to

exclude testimony from witnesses not listed in the pretrial witness list. Price v.

                                           4
Seydel, 961 F.2d 1470, 1474 (9th Cir. 1992). The Haghnazarzadehs had ample

opportunity to prepare for trial and were warned by the Tax Court’s five pretrial

orders that undisclosed witnesses could be barred from testifying. “Unless modified

to ‘prevent manifest injustice,’ the pretrial order controls.” Colvin v. U.S. for Use &

Benefit of Magini Leasing & Contracting, 549 F.2d 1338, 1340 (9th Cir. 1977)

(quoting Fed. R. Civ. P. 16(e)).         Moreover, Mr. Haghnazarzadeh testified

independently, but did not proffer any of Boodaie’s anticipated testimony to

demonstrate that it would have changed the result. As the Commissioner correctly

points out, “[s]peculation about what [a witness] could have said is not enough to

establish prejudice.” Grisby v. Blodgett, 130 F.3d 365, 373 (9th Cir. 1997). In sum,

the Tax Court did not abuse its discretion in excluding Boodaie’s testimony as a

witness.

      3.     Denying the Haghnazarzadehs’ Motion for Reconsideration

      Tax Court Rule 161 establishes the requirements for a motion for

reconsideration of the Tax Court’s opinion or findings of fact. “The granting of a

motion for reconsideration rests with the discretion of the Court,” which demands

“a showing of unusual circumstances or substantial error.” Est. of Quick v. Comm’r,

110 T.C. 440, 441 (1998). “The Tax Court’s denial of a motion for reconsideration

will not be overturned on appeal absent a clear abuse of discretion.” Parkinson v.

Comm’r, 647 F.2d 875, 876 (9th Cir. 1981).

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      The Tax Court did not abuse its discretion in denying the Haghnazarzadehs’

motion for reconsideration because they failed to show substantial error or that there

were any highly unusual circumstances. The motion was instead an improper

attempt to admit previously existing evidence that the Haghnazarzadehs were

unprepared to or had failed to submit at trial. The Haghnazarzadehs did not show

any change in the law or newly discovered evidence. Even assuming it was

reasonable for them to expect Boodaie to represent them at trial—which is

questionable—Boodaie’s alleged mishandling of their case does not rise to the level

of gross negligence that might warrant reconsideration. Cmty. Dental Servs. v. Tani,

282 F.3d 1164, 1170 (9th Cir. 2002). Neither their pro se status at trial, their alleged

reliance on Boodaie, nor Boodaie’s alleged mishandling of documents amount to

substantial error that would warrant reconsideration of the Tax Court’s decision at

trial. As noted at oral argument, the couple had two years, five trial dates, four

continuances, two stipulations of settled issues, one stipulation of settled facts, and

700 pages of exhibits to prepare their case and present evidence to rebut the IRS’s

assessment of their taxable income. The Tax Court therefore properly denied the

Haghnazarzadehs’ motion for reconsideration.

      AFFIRMED.

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