Court Opinion

ID: 9383151
Source: CourtListenerOpinion
Date Created: 2023-03-29 19:01:34.10843+00
Date Added: 2024-06-11T17:17:44.023601
License: Public Domain

United States Tax Court

                          T.C. Memo. 2023-44

                    ROBERT A. DI GIORGIO, SR.,
                           Petitioner

                                   v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

   ROBERT A. DI GIORGIO, SR. AND ZANDRA M. DI GIORGIO,
                        Petitioners

                                   v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                              —————

Docket Nos. 15675-12, 15751-12.                   Filed March 29, 2023.

                              —————

Robert A. Di Giorgio, Sr., and Zandra M. Di Giorgio, pro sese.

Derek P. Richman, Angela J. Ganase, and Daniel C. Munce, for
respondent.

       MEMORANDUM FINDINGS OF FACT AND OPINION

       BUCH, Judge: Robert Anthony Di Giorgio, Sr., was a mortgage
lender and real estate salesman who specialized in distressed
properties. He failed to report substantial income from those and other
activities for 2005 through 2007 (years in issue). With his unreported
income, Mr. Di Giorgio led a lavish lifestyle with extravagant vacations,
including one to the Philippines where he met his second wife. During
their marriage, he kept her in the dark about their true financial
situation. Through a bank deposits analysis, the Commissioner
determined income tax deficiencies, additions to tax, and civil fraud

                           Served 03/29/23
                                            2

[*2] penalties. The Di Giorgios challenged the Commissioner’s
determinations, and Ms. Di Giorgio asserted that she is entitled to
innocent spouse relief under section 6015. 1 The Commissioner
established by clear and convincing evidence that Mr. Di Giorgio
underreported his income, that he underpaid his tax, and that those
underpayments were due to fraud. Ms. Di Giorgio established that she
is entitled to relief from joint and several liability.

                               FINDINGS OF FACT

      Mr. Di Giorgio and his first wife incorporated Radius Capital
Corp. (Radius CA) in California in 1995. 2 They held all outstanding
shares as community property under California law. Radius CA
operated as a mortgage lender and issuer of mortgage-backed securities,
and Mr. Di Giorgio was its president and chief executive officer
throughout its existence. Radius CA did business under other names,
including Home Mortgage of America and Home Realty of America.
Radius CA elected to be treated as an S corporation for income tax
purposes.

       Mr. Di Giorgio, his first wife, and their two sons moved to Cape
Coral, Florida, in 2003. They purchased a home in which they resided.
Mr. Di Giorgio’s first wife passed away in December 2005. After her
death, Mr. Di Giorgio continued working in Florida and remarried. We
discuss his relationship with his second wife separately, below.

I.      Business and Other Income-Producing Activities

       It is difficult to paint a precise picture of Mr. Di Giorgio’s business
activities. He held multiple bank accounts in his own name or in the
names of his businesses. He did business with more than 30 title
companies and myriad borrowers from whom he received and deposited
payments in both his business and personal accounts. He comingled
funds, moving money between those accounts and using business
accounts for personal expenses. He provided the Court little in the way

        1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C. (I.R.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. All monetary amounts are rounded to the nearest dollar.
        2 Mr. Di Giorgio’s first wife died in December 2005 and is not a party to these

cases; Mr. Di Giorgio remarried in 2006. To reduce confusion, we refer to his first wife
only as his “first wife” and to his second wife as his “second wife” or “Ms. Di Giorgio.”
                                    3

[*3] of books and records. Nevertheless, this is clear: Mr. Di Giorgio had
many sources of income. His major income sources include (1) real estate
sales, (2) Radius CA, (3) a similarly named entity, Radius Capital Corp.
of Florida (Radius FL), (4) a Scottrade brokerage account, and (5) other
miscellaneous sources.

      A.     Real Estate Sales

       Mr. Di Giorgio earned income from selling real estate in 2005 and
2006. He sold 12 properties in 2005 and 7 properties in 2006. He
generally purchased “tax sale” homes that he would re-sell at higher
prices without much refurbishment. He was the sole owner of each
property he sold except one, which he co-owned with his first wife at the
time of her death.

      B.     Radius CA

      Mr. Di Giorgio earned income from operating Radius CA in 2005
and 2006. He wrote checks from Radius CA to himself and used Radius
CA’s credit cards and bank accounts to pay personal expenses.

       Radius CA earned income by making mortgage loans and selling
mortgage-backed securities. A mortgage-backed security is created
when a lender pools a group of mortgage loans and sells interests in the
pool to investors. During 2005 and 2006, Radius CA sold at least 15
mortgage-backed securities.

       In connection with those securities, the Securities and Exchange
Commission (SEC) filed a complaint against Radius CA and Mr.
Di Giorgio alleging that they defrauded the Government National
Mortgage Association (Ginnie Mae). The SEC prevailed in 2015. Mr.
Di Giorgio and Radius CA were enjoined from selling mortgage-backed
securities and were held jointly and severally liable for disgorgement of
$1,427,095, which represented profits obtained from the violations. See
SEC v. Radius Cap. Corp., No. 2:11-cv-116-FtM-29DNF, 2015 WL
1781567, at *11 (M.D. Fla. Apr. 20, 2015). The U.S. Court of Appeals for
the Eleventh Circuit affirmed. See SEC v. Radius Cap. Corp., 653
F. App’x 744 (11th Cir. 2016).

      According to Mr. Di Giorgio, Radius CA no longer operated as of
2007. But Radius CA was not completely inactive. That year, he
nominally made his second wife Radius CA’s president, using her
maiden name on the paperwork. In April 2007, Radius CA transferred
ownership of real property at 215 Flamingo Street, Fort Myers Beach,
                                   4

[*4] Florida, to Mr. Di Giorgio by corporate warranty deed. His second
wife’s maiden name was used on the corporate warranty deed for Radius
CA, but it was not her signature. At trial, she did not recognize the
document or the signature. She was unaware of what a corporate
warranty deed was and was unsure of whether Radius CA or Mr.
Di Giorgio owned the Flamingo Street property. Mr. Di Giorgio
deposited the proceeds of the sale in a personal bank account that he did
not share with his second wife.

      C.     Radius FL

      Mr. Di Giorgio earned income from Radius FL, which was distinct
from Radius CA, in 2005 through 2007. His nephews were involved in
Radius FL, but its operations, ownership, and relationship to Radius CA
are unclear from the record. Automatic Data Processing, Inc. (ADP),
periodically issued checks to Mr. Di Giorgio from Radius FL in 2005 and
2006. And throughout the years in issue, he frequently withdrew cash
and wrote checks to himself from Radius FL’s bank account, and he
deposited those checks in his personal accounts. Memos written on the
checks included, among others, “income dispersement” (sic), “return on
investment,” “multiple commissions,” and “multiple accounts.” Radius
FL used Mr. Di Giorgio’s mortgage license in its operations because it
did not otherwise have one.

      D.     Scottrade Brokerage Account

       In 2007, Mr. Di Giorgio earned income from trading securities
through a Scottrade brokerage account. He transferred at least $805,000
to the account that year. He received dividends totaling $29,791.

      E.     Miscellaneous

     Mr. Di Giorgio had other sources of both nontaxable and taxable
income including a life insurance policy, retirement accounts, and a
company called Quickbling Investment Corp., Inc. (Quickbling).

      In March 2006, Mr. Di Giorgio received $1,008,039 representing
proceeds from an insurance policy on the life of his first wife. He
deposited those proceeds in a personal account.

     In February 2007, he incorporated Quickbling. In May 2007, he
made his second wife nominal vice president, but she did not work for
Quickbling and did not know its business purpose. It is unclear from the
                                    5

[*5] record what Quickbling did, and its one bank account included in
the stipulation had little activity.

      Mr. Di Giorgio received retirement account distributions totaling
$88,781 during 2007. He was in his midforties that year.

II.    Lifestyle

      Mr. Di Giorgio’s income funded his lifestyle. He owned a four-
bedroom waterside home. He also owned a beach house at which his sons
from his first marriage resided at times. He owned multiple cars, boats,
and jet skis, and he spent large sums at marinas. In 2007, he traded his
boat toward the purchase of a $300,000 yacht. He traveled regularly,
stayed in expensive hotels, and purchased airfare and other items for
family members.

III.   Reporting

       On federal income tax returns that he prepared, Mr. Di Giorgio
painted a picture that differed from the lifestyle he led. For each year in
issue, Mr. Di Giorgio filed a Form 1040, U.S. Individual Income Tax
Return, on which he reported taxable income of zero. As president of
Radius CA, he filed Form 1120S, U.S. Income Tax Return for an
S Corporation, for 2005 but failed to do so for 2006 and 2007. He filed
his returns late for each year in issue.

       A.     2005 Returns

       Mr. Di Giorgio filed his 2005 individual return with the status of
married filing separately. He reported adjusted gross income (AGI) of
$50,192, which consisted of $37,685 of wages, $105,029 of taxable
interest, a $9,018 net profit from Schedule C, Profit or Loss From
Business, a net loss of $85,673 from Schedule E, Supplemental Income
and Loss, and self-employment deductions totaling $15,867. Radius FL
issued a Form W–2, Wage and Tax Statement, for the wages Mr.
Di Giorgio reported, but he did not attach the Form W–2 to his return.
Instead, he attached Form 4852, Substitute for Form W–2, Wage and
Tax Statement, or Form 1099–R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc., on which he listed himself as both the payor and the
payee of the wages. The Schedule C profit stemmed from Radius CA, for
which he reported gross receipts or sales of $62,951 and expenses
totaling $53,933. He claimed itemized deductions and exemptions far
greater than his AGI and reported taxable income of zero. The
                                    6

[*6] Schedule E loss stemmed from rental real estate activities. On
Schedule E, Part I, Income or Loss From Rental Real Estate and
Royalties, Mr. Di Giorgio reported six rental real estate properties, rents
of $1,920, and expenses totaling $87,593. Mr. Di Giorgio did not include
Schedule E, Part II, Income or Loss From Partnerships and
S Corporations.

      Mr. Di Giorgio also filed a 2005 Form 1120S for Radius CA. He
reported net ordinary business income of $105,029, matching the
amount reported on his personal Schedule B, Interest and Ordinary
Dividends. That net amount consisted of $3,501,052 of gross receipts
and deductions totaling $3,396,023. Among others, the deductions
included $489,606 for salaries and wages, $1,890,013 for commissions,
and $37,685 for officer compensation—the same amount that Mr.
Di Giorgio reported as his wages on his Form 1040. However, ADP
records showed that Radius FL, not Radius CA, paid Mr. Di Giorgio
those wages. Further, ADP records showed that Radius CA paid its
employees considerably less wages than Mr. Di Giorgio reported as
expenses; ADP sent him payroll records showing wages of $247,927.

      B.     2006 Returns

       Mr. Di Giorgio filed two Forms 1040 for 2006. He filed an original
return electing qualifying widower status. He later filed an amended
joint return with his second wife, which the Internal Revenue Service
(IRS) accepted, but the parties agree that his correct status is surviving
spouse.

       The Di Giorgios reported negative AGI of $388,259, which
consisted of $22,201 of wages, $27,929 of taxable interest, a $4,551 loss
deduction from Schedule C, a $3,000 capital loss deduction from
Schedule D, Capital Gains and Losses, a $437,391 loss deduction from
Schedule E, $6,603 of unemployment compensation, and a $50 tuition
and fees deduction. They claimed itemized deductions, seven personal
exemptions, and an additional child tax credit. They reported taxable
income of zero and claimed a refund of $1,013.

       The Schedule C loss stemmed from Radius CA. They reported
gross income of $49,330 and expenses totaling $53,881. Those expenses
included car and truck expenses for two vehicles. They reported 48,066
business miles (roughly 132 miles per day).

       The Schedule E reflected a loss deduction from a combination of
rental real estate activities and Radius CA. On Schedule E, Part I, they
                                   7

[*7] reported five rental properties, including Flamingo Street, which
Radius CA owned and Mr. Di Giorgio’s sons used as a residence. They
reported a $45,567 net loss, which consisted of rents of $880 and
expenses totaling $46,447. On Part II, they reported a $391,824 loss
from Radius CA. They provided an employer identification number but
did not file Form 1120S for Radius CA, so they failed to report how they
calculated that amount.

      C.     2007 Return

       Mr. Di Giorgio and his second wife filed a joint return for 2007.
They reported negative AGI of $5,310, which consisted of $3,300 of
wages, $24,013 of taxable interest, a $3,000 loss deduction from
Schedule D, a $32,689 loss deduction from Schedule E, $3,600 of state
unemployment compensation, and a $534 tuition and fees deduction.
They omitted Mr. Di Giorgio’s dividend income and retirement account
distributions. They claimed six exemptions and various itemized
deductions. They reported taxable income of zero.

       The Schedule D loss stemmed from a short-term capital loss on
the sale of “CRNT” stock. The Schedule E loss reportedly stemmed from
rental real estate activities. On Schedule E, Part I, they reported one
rental property, Flamingo Street (which Radius CA had transferred to
Mr. Di Giorgio that year). They reported rents of $4,250 and expenses
totaling $36,939.

IV.   IRS Examination

      The IRS examined the 2005 through 2007 returns. The
examination began in or around 2008 and ended in 2011. The revenue
agent who conducted the examination considered Mr. Di Giorgio to have
been uncooperative and adversarial. There is no evidence that his
second wife was involved in the examination.

      Mr. Di Giorgio failed to communicate with the revenue agent and
missed multiple scheduled meetings without notice. He changed his
phone numbers without informing the revenue agent, so she had to
contact him by mail, delaying the audit.

      Mr. Di Giorgio failed to respond to document requests. The
revenue agent requested bank and business records several times. Mr.
Di Giorgio did not provide any bank records, although he did provide the
revenue agent with information about one account so she could find and
obtain the records herself. He informed the revenue agent that the SEC
                                   8

[*8] took all of his business records and that he did not have copies. He
provided no information to help the revenue agent obtain his records
from the SEC, and there is no evidence that he ever attempted to reclaim
his own records.

      The revenue agent obtained documents from third parties and
issued summonses to banks and title companies. She uncovered
multiple bank accounts, real estate sales, and mortgages that Mr.
Di Giorgio had failed to disclose. Whereas he told her about one bank
account and a few sales, she discovered more than ten of each.

       During the audit, Mr. Di Giorgio gave the IRS four documents
that the revenue agent considered suspect or false. The documents
consisted of three invoices, each allegedly issued by a different person,
and one statement from an alleged real estate partner. All four
documents pertain to 3420 SE 4th Place, Cape Coral, Florida, a property
Mr. Di Giorgio purchased on August 1, 2005, and sold on December 7,
2005.

      The revenue agent noticed that the invoices contained consistent
but unusual typographical errors. On all three, the issuer’s address
included a lowercase street designation (i.e., “ct”, “rd”, “lane”). She
noticed the same idiosyncrasy in multiple places on Mr. Di Giorgio’s
2006 and 2007 returns. Two of the invoices lacked a ZIP Code for the
sender. When the revenue agent tried looking up the addresses to find
the ZIP Codes, she discovered the addresses were invalid. She
attempted, but was unable, to contact any of the invoice issuers. Various
other oddities indicated that the invoices were fabricated, such as
bracketed invoice numbers or the statement “Make all checks payable
to [Your Company Name].” One is dated more than a year after Mr.
Di Giorgio sold the property. And although Mr. Di Giorgio sold the
property as “vacant land,” the invoices were for improvements such as
drywall or stucco.

      The revenue agent also found a signed statement provided by Mr.
Di Giorgio to be suspect. The statement was allegedly from a business
partner, Ms. Russell (Russell statement), and read: “This is to confirm
that [Ms.] Russell was a 50% owner of the property located at 3420 4th
Place Cape Coral, Florida. 33904.” Although it was signed in Ms.
Russell’s name, it did not include any contact information and gave no
indication of the timeframe to which it applied. The revenue agent found
a canceled check written from Ms. Russell’s bank account amongst the
                                   9

[*9] summoned bank records and compared it to the Russell statement.
The signatures were markedly different.

V.     Bank Deposits Analysis

       The revenue agent conducted a bank deposits analysis using
summoned records. The revenue agent calculated total deposits, then
considered nontaxable sources, transfers, previously reported income,
and deductible expenses. The revenue agent discovered unreported
income, which she categorized or attributed to various sources
depending on where it was deposited. She attributed personal account
deposits to a general category of unreported income (much of which came
from Radius FL, which was not included in the audit). Other categories
included gain from real estate sales, dividends, and retirement account
distributions. She attributed deposits in Radius CA’s accounts to
S corporation gross receipts.

      Overall, despite determining that a significant portion of the
deposits was nontaxable, already reported, or included in other
adjustments, the Commissioner determined a large amount of
unreported income. The Commissioner categorized the unreported
income and unreported deposits as stemming from either Radius CA or
other sources. He determined taxable deposits from Radius CA of
$1,158,273 and $5,267,876 for 2005 and 2006, respectively. And he
determined other taxable deposits of $2,404,793, $1,374,340, and
$1,409,068 for 2005, 2006, and 2007, respectively.

VI.    Civil Fraud Penalty

      The revenue agent decided to assert fraud and accuracy-related
penalties. On June 15, 2011, the IRS mailed a Letter 915 (also known
as a 30-day letter) to the Di Giorgios for each year in issue. The IRS
included an examination report that asserted a fraud penalty for each
year with each 30-day letter. The revenue agent’s acting group manager
signed the 30-day letters before mailing.

VII.   Notices of Deficiency

       The Commissioner mailed two notices of deficiency on March 22,
2012, one to Mr. Di Giorgio for 2005, and the other to Mr. Di Giorgio and
his second wife for 2006 and 2007. In the notices, the Commissioner
determined taxable income of $6,688,864, $6,583,636, and $1,624,946
for 2005, 2006, and 2007, respectively. The Commissioner determined
the following deficiencies, additions to tax, and penalties:
                                    10

    [*10]                                Additions to Tax/Penalties
        Year         Deficiency
                                     § 6651(a)(1)             § 6663

        2005        $2,344,453        $586,113             $1,758,340

        2006         2,294,704           573,423             1,720,313

        2007           549,815            54,982              412,361

      The deficiencies largely result from the unreported deposits in the
amounts discussed above. The parties agree that the other unreported
income amounts include unreported interest of $3,284, $15,030, and
$1,768 for 2005, 2006, and 2007, respectively. The Commissioner also
made various other income adjustments, reduced or disallowed some
deductions, and allowed several previously unclaimed deductions. The
Commissioner disallowed dependency exemptions for 2006. Finally, the
Commissioner made various computational adjustments.

      A.       Real Estate Sales (Schedule C)

       The Commissioner determined Schedule C receipts from the sale
of property and allowed previously unreported income offsets to
calculate net gain. For 2005, the Commissioner determined a $419,000
net gain. For 2006, the Commissioner determined a $318,469 net gain.

       The Commissioner disallowed deductions for reported Schedule C
expenses. For 2005, the Commissioner disallowed deductions for vehicle
and depreciation expenses and allowed $4,309 for various other
expenses (while disallowing $13,374). For 2006, the Commissioner
disallowed deductions for vehicle expenses and allowed $176 for various
other expenses (while disallowing $31,101). The Commissioner also
allowed an unclaimed mortgage interest expense of $51,537.

      B.       Rental Real Estate (Schedule E)

      The Commissioner disallowed deductions for all rental real estate
losses reported on Schedules E for 2005 through 2007. The
Commissioner determined the rental activities were passive and that all
the expenses that generated the losses lacked substantiation. For 2007,
the Commissioner further determined that the rental activity was for a
vacation home for personal use.
                                  11

[*11] C.    Radius CA (Schedule E)

      The Commissioner allocated all of Radius CA’s income to Mr.
Di Giorgio on the basis of his 100% ownership of Radius CA. For 2005,
the Commissioner determined a distributive share of $3,859,301. In
reaching that amount, the Commissioner allowed deductions totaling
$694,995. For 2006, the Commissioner determined a distributive share
of $4,905,005. In reaching that amount, the Commissioner allowed
unclaimed deductions for expenses (including salaries and wages,
commissions, advertising, interest, and “other” expenses) totaling
$362,871.

      D.    Dividends

      The Commissioner determined dividends of $29,791 for 2007.

      E.    Capital Gain/Loss

       For 2006 and 2007, the Commissioner disallowed claimed capital
loss deductions of $3,000 for both years. Mr. Di Giorgio agrees to the
disallowance for 2006, and the Commissioner concedes the 2007
adjustment.

      F.    Retirement Account Distributions

      The Commissioner determined distributions of $88,780 for 2007
and imposed additional tax pursuant to section 72(t).

      G.    Unemployment Compensation

      The Commissioner determined unemployment compensation of
$5,225, rather than the $3,600 Mr. Di Giorgio reported. Mr. Di Giorgio
agrees with the Commissioner’s determination.

      H.    Itemized Deductions

      Because of a lack of substantiation, the Commissioner disallowed
claimed itemized deductions for 2005 and 2006. For 2005, the
Commissioner disallowed deductions for medical and dental expenses
and real estate taxes. For 2006, the Commissioner disallowed
deductions for personal property taxes and home mortgage interest.
                                    12

[*12] VIII.   Mr. Di Giorgio’s Second Wife

       Mr. Di Giorgio met his second wife, Zandra Di Giorgio, online in
December 2005. She lived in the Philippines, where she was born and
raised. She was 26 years old and had two minor children from a prior
relationship. She had a high school education and had taken some
college nursing courses but never finished the program. Her work
history was limited to roughly two weeks of employment at a Dunkin
Donuts. English is not her first language.

       Mr. Di Giorgio traveled to the Philippines in January 2006 and
their online relationship became an in-person one. Ms. Di Giorgio was
not accustomed to his lifestyle. He took her to expensive resorts, rented
her an apartment, and bought her gifts. After several months of
traveling to and from the Philippines, he proposed marriage, and she
accepted. She and her children moved to Cape Coral in July 2006. They
entered the United States on a “fiancée visa,” which she understood
required her to marry Mr. Di Giorgio within three months, and they
married in September 2006. However, she and her children were
considered nonresident aliens for 2006, and Mr. Di Giorgio had not
adopted her children as of the end of that year. See I.R.C. § 7701(b).

       Compared to their long-distance relationship, their relationship
in Cape Coral was different. If Ms. Di Giorgio did something wrong or
was forgetful, Mr. Di Giorgio would “yell and scream [at the] top of his
lungs.” He disparaged her, for example, by telling her that she was “so
lucky that he took [her] out of that jungle.” Ms. Di Giorgio’s testimony
about this statement was credible and consistent with Mr. Di Giorgio’s
statements at trial; for example, he stated that “the dog always wags its
tail for the master and knows where it’s been fed” in reference to Ms.
Di Giorgio. She feared that if she didn’t do what he wanted, she would
jeopardize their relationship and her status in the United States.

       Mr. Di Giorgio controlled family finances. Ms. Di Giorgio had no
experience with accounting, finance, mortgages, mortgage-backed
securities, real estate, or U.S. taxes. Mr. Di Giorgio discouraged her from
working outside the home, and she did not meaningfully participate in
his businesses. All she knew about his business was that he sold houses.
She was not a joint accountholder on any of the bank accounts that the
Commissioner included in his bank deposits analysis. Mr. Di Giorgio
gave her spending money in cash or by transferring it to her separate
account, but she was not primarily responsible for paying bills or
                                    13

[*13] handling household expenses. She did not, for example, pay the
mortgage on their home during the years in issue.

       Ms. Di Giorgio had never seen a U.S. tax return before 2008. That
year, she signed a joint return for 2007 that she played no role in
preparing. Mr. Di Giorgio gave her the signature page and told her to
sign it without showing her the other pages. She asked what she was
signing, but Mr. Di Giorgio told her she wouldn’t understand and
instructed her to just sign. She was afraid of disobeying him, so she
signed the return.

       Ms. Di Giorgio was unaware of her husband’s legal and financial
problems when she signed the return, but they eventually came to light.
At the beginning of their relationship, she trusted him and saw him as
a financially successful person on the basis of their vacations in the
Philippines and the new lifestyle that greeted her in Florida. He was not
open about his issues with Ginnie Mae and the IRS; and although they
traveled less after she moved to Cape Coral, they still went on two
Caribbean vacations in 2007. However, after the years in issue, they
purchased a marital home and lost it in foreclosure. And when Ms.
Di Giorgio was pregnant with their second child in 2011, the SEC sued
Mr. Di Giorgio. She then came to understand that he named her as
president of Radius CA and vice president of Quickbling to avoid
government scrutiny. She was surprised by these revelations.

IX.   Petitions and Request for Innocent Spouse Relief

        On June 19, 2012, while residing in Florida, the Di Giorgios
timely petitioned for redetermination of their federal income tax
liabilities. In February 2014, Ms. Di Giorgio filed an Amendment to
Petition wherein she raised innocent spouse relief under section 6015
for 2006 and 2007, and she filed an administrative request for relief with
the Commissioner while these cases have been pending. The parties
agree that the Di Giorgios were ineligible for joint filing status for 2006,
and as a result, innocent spouse relief is no longer an issue for that year.
The Commissioner concedes that she is entitled to relief for 2007.

       By the time of the trial in December 2021, the Di Giorgios’
relationship had deteriorated. They separated and had been living apart
since 2019. At trial, they were in the midst of a years-long divorce
proceeding.

      Ms. Di Giorgio’s financial situation had also changed significantly
since the years in issue. During 2021, Ms. Di Giorgio had two
                                     14

[*14] dependents and worked as an in-home caregiver earning $15 per
hour. She reported monthly income of $3,100 and living expenses of
$4,750. In December 2021, she was temporarily out of work because her
client had recently passed away. She reported having tangible assets
(including jewelry, furniture, and clothing) with an estimated value of
$22,500, but only $216 in cash. She reported liabilities of $201,419,
including first and second mortgages, credit card debt, and student
loans.

                                OPINION

        These consolidated cases involve two taxpayers, two dockets, and
three years. Docket No. 15675-12 involves the redetermination of a
deficiency for 2005 as to Mr. Di Giorgio. Docket No. 15751-12 involves
the redetermination of deficiencies for 2006 and 2007 as to Mr.
Di Giorgio and Ms. Di Giorgio. Each year involves a tax deficiency, an
addition to tax for late filing under section 6651(a)(1), and a section 6663
civil fraud penalty (or a section 6662 accuracy-related penalty in the
alternative). Ms. Di Giorgio raised innocent spouse relief under section
6015 for 2006 and 2007, the years for which she is a party; however, the
parties have already agreed that she has no liability for 2006.

I.    Mr. Di Giorgio’s Credibility

       Before turning to our discussion, we must address Mr.
Di Giorgio’s credibility at trial. Mr. Di Giorgio’s testimony was not
credible. He tried to downplay his financial success. He testified that
vacationing in the Philippines was inexpensive because of exchange
rates. This explanation was inconsistent with Ms. Di Giorgio’s testimony
and his American Express statements, which show that he spent
thousands in U.S. dollars at luxury hotels. In 2006, he spent nearly
$40,000 at the Ritz Carlton in Florida. He testified that he chose to live
in Cape Coral because it was a cheap place to own a waterside home,
but he reported on a credit application that his home was valued at more
than $1 million. On the same credit application, he reported that his
gross monthly income was $33,000, which annualizes to $396,000.

       Mr. Di Giorgio’s testimony about his records also lacked
credibility. He told the revenue agent that the SEC had seized them, but
he testified that “without notice, Ginnie Mae came out and they seized
everything at Radius [CA]” in early 2006. He testified that he never saw
the records again but then testified that he “saw copies of those records”
that “the SEC wanted to give [him].” He also testified that while he
                                   15

[*15] “produced a lot of records” to substantiate his expenses, the
Commissioner allegedly lost them. His testimony is inconsistent with
the revenue agent’s testimony and with the documentary record. The
revenue agent returned his documents at the end of the audit and gave
him the summoned records at no cost.

        Mr. Di Giorgio’s testimony about the Russell statement also
lacked credibility. After the revenue agent testified about the Russell
statement and the check she found from Ms. Russell’s bank account, Mr.
Di Giorgio testified that he was the one who gave the revenue agent the
check because it “was the only thing [he could] find” to show that Ms.
Russell was his partner in selling real estate. He further testified that,
because the “check . . . wasn’t good enough” for the revenue agent, he
solicited the Russell statement:

      [W]hat I’m not speculating on is that I had asked [Ms.]
      Russell to give me that documentation to prove . . . that she
      was a partner. . . . At my request, Ms. Russell wrote me a
      letter testifying to the facts about her ownership. . . . The
      only reason to add the secondary document was because
      the first document wasn’t clear enough for [the revenue
      agent].

(Emphasis added.) After the IRS introduced the Russell statement at
trial, Mr. Di Giorgio changed his story. He testified that he could not
recall soliciting the statement or giving it to the Commissioner. He
further testified that during his earlier testimony, he “was speculating”
about what he would have done on the basis of the revenue agent’s
testimony that she questioned the check he “gave” her. (Emphasis
added.) The revenue agent found the check (he did not give it to her),
and she drew no connection between it and the Russell statement other
than to compare the signatures.

      His testimony contradicted other witnesses’ testimony. For
example, he testified that his Schedule C vehicle expenses for 2006
included mileage for three people—himself, his second wife, and an
employee. He also testified that Ms. Di Giorgio participated in the
business during the years in issue. However, Ms. Di Giorgio testified
that she could not drive in 2006 and did not participate in the business
during the years in issue. He also testified that he held joint accounts
with Ms. Di Giorgio, which was inconsistent with her testimony and the
actual bank records. In sum, he was not credible
                                   16

[*16] II.   Deficiency (Unreported Income and Disallowed Deductions)

       A.    Burden of Proof

       Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer bears the burden of
proving error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Taxpayers bear the burden of proving that they are entitled to claimed
deductions and credits. Rule 142(a); INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992). Carrying that burden requires the taxpayer to
“substantiate the nature, amount, and purpose of a claimed deduction.”
Sezonov v. Commissioner, T.C. Memo. 2022-40, at *4. In limited
situations, the burden may shift to the Commissioner under section
7491(a). The record does not support shifting the burden to the
Commissioner.

       The Commissioner reconstructed Mr. Di Giorgio’s income using
the bank deposits method. Taxpayers must maintain books and records
sufficient to establish their income and expenses, and if they fail to do
so, the Commissioner may reconstruct income through any reasonable
method. I.R.C. §§ 6001, 446(b); Petzoldt v. Commissioner, 92 T.C. 661,
693 (1989); Treas. Reg. § 1.6001-1(a). We have long accepted the bank
deposits method for this purpose. DiLeo v. Commissioner, 96 T.C. 858,
881 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992); Clark v. Commissioner, T.C.
Memo. 2021-114, at *34. The bank deposits method assumes that all
money deposited into a taxpayer’s account is taxable income unless the
taxpayer can show that the deposits are not taxable or were previously
reported. DiLeo, 96 T.C. at 868; Brodsky v. Commissioner, T.C. Memo.
2001-240, 82 T.C.M. (CCH) 505, 530. However, the Commissioner must
account for any nontaxable source or deductible expense of which he has
knowledge. DiLeo, 96 T.C. at 868; Brodsky, 82 T.C.M. (CCH) at 530.

       Here, the Commissioner calculated deposits, determined that
some were nontaxable or already included in income, and allowed
deductions. To support the analysis, the Commissioner produced bank
records, canceled checks, and withdrawal and deposit slips cross-
referencing Mr. Di Giorgio’s bank accounts. Further, the Commissioner
proved likely sources of the income, including Radius CA, Radius FL,
real estate sales, and stock trading, among others. The Commissioner’s
analysis is well supported, and we accept the reconstruction of income
and expenses as reasonable and accurate.
                                   17

[*17] B.     Mr. Di Giorgio’s Arguments

      Mr. Di Giorgio argues that the Commissioner’s reconstruction is
excessive for various reasons.

             1.     Nontaxable Sources

        The Commissioner accounted for nontaxable deposits, but Mr.
Di Giorgio argues additional amounts are nontaxable. He argues that
nontaxable sources include double-counted life insurance proceeds, loan
principal, transfers, and deposits taxable to third parties. He cites no
documentary evidence in the record to support his argument. He
received $1,008,039 of life insurance proceeds in 2006, but that amount
is less than the amount the Commissioner has already determined to be
nontaxable for that year. Because Mr. Di Giorgio did not establish any
nontaxable sources in excess of what the Commissioner already allowed,
he did not meet his burden. See Hradesky v. Commissioner, 65 T.C. 87,
89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976).

             2.     Real Estate Sales (Schedule C)

       Mr. Di Giorgio argues that the Commissioner’s determinations of
income from real estate sales for 2005 and 2006 are excessive. In the
notices of deficiency, the Commissioner determined net gain from both
reported and unreported sales. Through subsequent stipulations, the
Commissioner agreed to reduce the amounts of gain to $373,836 and
$252,853 for 2005 and 2006, respectively. Mr. Di Giorgio argues that
these reduced amounts are not low enough.

       First, Mr. Di Giorgio asserts that he had real estate partners to
whom some of the gain must be allocated. He generally testified that his
nephews and Ms. Russell were his partners, but he cites only one
document in the record to support his assertion. Specifically, he claims
that a check “payable to [Ms.] Russell . . . clearly show[s]” that she was
his partner. Setting aside the fact that the check was payable to Mr.
Di Giorgio (from Ms. Russell), it does not establish a partnership. Other
than Mr. Di Giorgio’s testimony, which was not credible, there is no
evidence he had any partners in selling real estate. He did not meet his
burden.

       Mr. Di Giorgio further asserts that he incurred deductible
business expenses. In the notices of deficiency, the Commissioner
disallowed vehicle, depreciation, and various other expenses for 2005,
                                    18

[*18] and vehicle and various other expenses for 2006 (all of which are
in dispute).

      In his brief, Mr. Di Giorgio argues that he may deduct vehicle
expenses and depreciation. He generally testified that he had vehicle
expenses during 2005 and 2006 but cites no documentary evidence of
those expenses in the record. Vehicle expenses require strict
substantiation, and his testimony was insufficient to meet this
standard. See I.R.C. §§ 274(d), 280F(d)(4); Shah v. Commissioner, T.C.
Memo. 2015-31, at *18–19. Otherwise, he offered no documentary
evidence as to the remaining expenses. We uphold the Commissioner’s
determination.

             3.     Rental Real Estate Activities (Schedule E)

        Mr. Di Giorgio argues that he is entitled to losses from real estate
activities. Each year, Mr. Di Giorgio reported expenses far greater than
his rental income and deducted the losses against nonpassive income.
The amounts at issue are $85,673, $45,567, and $32,689 for 2005, 2006,
and 2007, respectively. Mr. Di Giorgio argues that he was “at all times
. . . a license[d] real estate broker [who] personally managed his
properties and [is] entitled to claim [nonpassive] losses.”

       Section 162(a) generally allows a deduction for ordinary and
necessary trade or business expenses, while section 469(a)(1)(A) and (b)
disallows a deduction for “passive activity loss.” Section 469(c)(2) treats
all rental activity as passive, but section 469(c)(7)(A)(i) carves out an
exception for rental activities of taxpayers who are “real estate
professionals.” See Sezonov, T.C. Memo. 2022-40, at *4. To qualify as a
real estate professional, the taxpayer generally must perform at least
750 hours of services in a real property trade or business in which he
“materially participates,” among other requirements. I.R.C.
§ 469(c)(7)(B); Sezonov, T.C. Memo. 2022-40, at *4–5.

       We need not address the question of whether Mr. Di Giorgio’s
losses are passive if he failed to establish that his rental real estate
activities generated a loss. To do so, Mr. Di Giorgio must establish that
he incurred deductible expenses under section 162. Mr. Di Giorgio did
not specifically testify about expenses he incurred in connection with his
reported rental properties, and he cites no documentary evidence of the
reported expenses. Further, he did not provide any evidence from which
the Court could make a reasonable estimate of his expenses. See Cohan
v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930); Mileham v.
                                  19

[*19] Commissioner, T.C. Memo. 2017-168, at *36. Thus, he has not
shown that he incurred deductible expenses. Because he did not meet
his burden regarding expenses, we need not reach the question of
whether he was a real estate professional. We note, however, that Mr.
Di Giorgio did not offer any evidence of the number of hours he served
in a real property trade or business.

             4.    Radius CA – Schedules E

       Mr. Di Giorgio disputes the Commissioner’s determination of his
distributive share of ordinary income from the S corporation Radius CA
for 2005 and 2006. The parties agree that Mr. Di Giorgio owned a 50%
interest in Radius CA for the first 341 days of 2005 and 100% for the
remaining 24 days, after his first wife passed away. He was the sole
owner in 2006.

       S corporations are passthrough entities, which generally are not
subject to income tax. I.R.C. § 1366(a); see Tribune Media Co. v.
Commissioner, T.C. Memo. 2021-122, at *40–41. Rather, section
1366(a)(1) provides that an S corporation’s income, losses, deductions,
and credits are passed through to its shareholders. An S corporation
shareholder must take the S corporation’s income into account on his or
her individual income tax return regardless of whether any income is
distributed. See Alt. Health Care Advocs. v. Commissioner, 151 T.C. 225,
240 (2018). In determining income to Radius CA, the Commissioner took
into account deposits to Radius CA’s bank accounts and reduced them
by any deposits from nontaxable sources. Mr. Di Giorgio did not
establish any additional nontaxable sources or establish that he did not
have an interest in Radius CA.

       Mr. Di Giorgio also argues that the Commissioner failed to take
into account Radius CA’s expenses (e.g., payroll, commissions, and bad
debts). For the first time on brief, he also argues that the SEC’s
judgment against him is an enforceable debt that is deductible for the
year he incurred it. Mr. Di Giorgio’s arguments are unsupported by the
record.

      First, the record shows that the Commissioner either allowed in
the notices of deficiency or agreed to by stipulation various expenses,
including salaries, wages, and commissions, among others. Mr.
Di Giorgio failed to prove that Radius CA incurred deductible expenses
beyond those amounts already allowed or agreed upon. See Hradesky,
65 T.C. at 89–90. His generalized testimony was not credible, and in his
                                    20

[*20] brief, he refers to only one document evidencing a commission
payment. Mr. Di Giorgio did not cite where that document might be
located in the record, and the Court was unable to independently locate
it.

       Second, as for any payment he may have made to the SEC, there
is no evidence in the record that Mr. Di Giorgio paid any outstanding
judgment. See I.R.C. § 162(a), (f); Ziroli v. Commissioner, T.C. Memo.
2022-75, at *7–9. Indeed, the judgment did not arise until 2015, after
the years in issue.

             5.     Dividends

      Mr. Di Giorgio does not appear to dispute his receipt of dividend
income, but he argues that he “should not be rule[d] to have received
unreported dividends especially with regard to [CRNT stock]” for which
he had a capital loss. His argument is without merit. The Commissioner
produced Scottrade records showing payment of dividends, and Mr.
Di Giorgio failed to establish any error in the Commissioner’s
determination.

             6.     Retirement Account Distributions

       In his petition, Mr. Di Giorgio disputed the Commissioner’s
determination of distributions from retirement accounts. For 2007, the
Commissioner determined taxable distributions of $88,780 and
additional tax of $8,878 pursuant to section 72(t), which imposes a 10%
tax on early distributions from qualified retirement plans that are
includible in gross income. Mr. Di Giorgio alleged that some of the
distributions were from his first wife’s retirement plan and were a
nontaxable inheritance. He did not mention the distributions at trial or
in his brief. To the extent that he argued the determination was
erroneous, we treat him as having abandoned that argument. See Rule
151(e)(4) and (5); Petzoldt, 92 T.C. at 683. Further, the record shows that
the premature distributions came from Mr. Di Giorgio’s retirement plan,
not his first wife’s.

       The distributions are subject to the additional tax under section
72(t). Section 72(t)(2) provides certain exceptions from this additional
tax, but Mr. Di Giorgio neither argued nor established that any
exception applies.
                                        21

[*21] C.       Itemized Deductions

       Mr. Di Giorgio argues that he is “entitled to claimed itemized
deductions” for 2005 through 2007. The Commissioner disallowed
deductions for medical and dental expenses, real estate taxes, personal
property taxes, and home mortgage interest. Mr. Di Giorgio put on no
evidence of those expenses at trial. Because he bears the burden of proof
on this issue, his failure precludes him from prevailing. See Nitschke v.
Commissioner, T.C. Memo. 2016-78, at *4–5, *9; Miller v. Commissioner,
T.C. Memo. 2014-105, at *11–13.

       D.      Dependency Exemptions

       Mr. Di Giorgio argues that he should be permitted to claim Ms.
Di Giorgio’s children as dependents for 2006 for purposes of section
151(c). The parties agree Mr. Di Giorgio’s correct filing status was
qualifying widower, that the children were nonresident aliens, and that
he had not adopted them as of December 31, 2006. However, he argues
that the children qualify as dependents because he supported them and
they lived with him for more than six months during 2006.

       Section 152(b)(3)(A) provides that a “dependent” does not include
certain nonresident aliens. Section 152(b)(3)(B) provides an exception
for nonresident alien children who have been adopted by the taxpayer.
See I.R.C. § 152(f)(1)(B). As of the end of 2006, Ms. Di Giorgio’s children
were nonresident aliens, and Mr. Di Giorgio had not adopted them. Mr.
Di Giorgio is not entitled to the claimed dependency exemptions.

III.   Additions to Tax and Penalties

       A.      Burden of Proof and Production

       The Commissioner determined additions to tax under section
6651(a)(1) and fraud penalties under section 6663. 3 The Commissioner
bears the burden of production with respect to additions to tax and
penalties and must produce evidence that they are appropriate. See
I.R.C. § 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446–47 (2001).
For section 6663 fraud penalties, however, the Commissioner must

        3 The Commissioner determined penalties under section 6662 as an

alternative. We need not reach this issue because we conclude that section 6663
applies. See Treas. Reg. § 1.6662-2(c) (explaining that where more than one penalty
could apply to a portion of an underpayment, penalties do not stack, and only the
maximum potentially applicable penalty applies).
                                         22

[*22] prove fraud by clear and convincing evidence. Rule 142(b); see
I.R.C. § 7454(a); Castillo v. Commissioner, 84 T.C. 405, 408 (1985). Such
a showing would generally shift the burden to the Di Giorgios to come
forward with persuasive evidence that the determination is incorrect or
that they had reasonable cause. See Higbee, 116 T.C. at 447. Where
applicable, the Commissioner must produce evidence of managerial
penalty approval under section 6751(b)(1). See Walquist v.
Commissioner, 152 T.C. 61, 68 (2019).

       B.      Penalty Approval

       Section 6751(b)(1) generally requires managerial approval of
certain penalties before assessment, including section 6663 penalties. 4
Thus, the Commissioner must produce evidence of compliance with
section 6751(b)(1), which provides that that no penalty shall be assessed
unless the initial determination of the penalties is approved (in writing)
by the immediate supervisor of the person who made that
determination. An “initial determination” occurs the earlier of when the
Commissioner issues a notice of deficiency or formally communicates a
decision to determine penalties. Belair Woods, LLC v. Commissioner,
154 T.C. 1, 14–15 (2020); Clay v. Commissioner, 152 T.C. 223, 248–49
(2019), aff’d, 990 F.3d 1296 (11th Cir. 2021).

      An appeal of these cases would lie with the Eleventh Circuit,
which has held that approval at any time before assessment satisfies the
statute. See Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir.
2022), rev’g in part T.C. Memo. 2020-73. We follow clearly established
law of the circuit in which a case before us is appealable. Golsen v.
Commissioner, 54 T.C. 742, 756–58 (1970), aff’d, 445 F.2d 985 (10th Cir.
1971). Thus, we follow Kroner here. The Commissioner satisfied
Kroner’s standard because the penalties have been approved and have
not yet been assessed.

       Even under our more stringent precedent, however, section
6751(b)(1) is satisfied. See Clay, 152 T.C. 223. The revenue agent
proposed section 6663 penalties in examination reports that were
mailed to the Di Giorgios (on June 15, 2011) with 30-day letters signed
by the revenue agent’s immediate supervisor. In Clay, we held that an
examination report that is attached to a 30-day letter and proposes
section 6663 penalties can embody the initial determination. Id. at 249.

       4 Section 6751(b)(2) provides that the general rule of section 6751(b)(1) does

not apply to any addition to tax under section 6651.
                                    23

[*23] Where the relevant supervisor has signed such a 30-day letter,
section 6751(b)(1) is satisfied. See Belanger v. Commissioner, T.C.
Memo. 2020-130, at *27–28; see also TOT Prop. Holdings, LLC v.
Commissioner, 1 F.4th 1354, 1373–74 (11th Cir. 2021). The letters were
mailed on June 15, 2011, before the notices of deficiency, so they satisfy
section 6751(b)(1).

      C.     Section 6651(a)(1)

       Section 6651(a)(1) imposes an addition to tax for failure to file a
return on or before the due date (including extensions) unless the
taxpayer can establish that such failure was “due to reasonable cause
and not due to willful neglect.” To demonstrate reasonable cause, a
taxpayer must show that he exercised ordinary business care and
prudence but was nevertheless unable to file on time. United States v.
Boyle, 469 U.S. 241, 246 (1985); Treas. Reg. § 301.6651-1(c)(1).

       The Commissioner produced evidence of late filing, which Mr.
Di Giorgio does not dispute. Despite placing the additions to tax at issue,
Mr. Di Giorgio does not argue on brief that his late filing was due to
reasonable cause and not willful neglect. At trial, he testified that he
had a difficult time when his wife died, saying that he was a “vegetable”
and “wasn’t able to handle [his] business affairs.” However, he was able
to arrange international travel in the weeks immediately following his
first wife’s death, and he continued operating Radius CA. Although the
death of a taxpayer’s immediate family member may constitute
reasonable cause in certain circumstances, a taxpayer’s selective
inability to meet his tax obligations when he can otherwise carry on
normal activities does not excuse late filing. Boyle, 469 U.S. at 243 n.1;
Wilkinson v. Commissioner, T.C. Memo. 1997-410, 74 T.C.M. (CCH) 566,
571. The record does not support a finding that Mr. Di Giorgio acted
with reasonable cause and not willful neglect. See Rule 151(e)(4) and (5);
Petzoldt, 92 T.C. at 683.

      D.     Section 6663

       Section 6663 imposes a penalty of 75% of an underpayment of tax
if any part of the underpayment is due to fraud. Once the Commissioner
establishes that part of an underpayment is due to fraud, the entire
underpayment is treated as attributable to fraud, except to the extent
the taxpayer establishes otherwise. I.R.C. § 6663(b). The existence of
fraud is a factual question to be resolved by considering the entire
record. See DiLeo, 96 T.C. at 874. The Commissioner must prove two
                                    24

[*24] elements of fraud by clear and convincing evidence: (1) an
underpayment of tax and (2) fraudulent intent. Castillo, 84 T.C.
at 408–09. The Commissioner’s burden applies separately for each of the
years in issue. Id. at 409; see I.R.C. § 7454(a); Rule 142(b).

       An underpayment is the amount by which the tax imposed by
Title 26 exceeds the amounts shown as the tax by the taxpayer on his
return. I.R.C. § 6664(a). The Commissioner established by clear and
convincing evidence that Mr. Di Giorgio reported less tax than he owed
for each year in issue, resulting in underpayments.

      We can infer fraudulent intent from circumstantial evidence, the
weight of which may vary depending on the taxpayer’s sophistication.
See Clark, T.C. Memo. 2021-114, at *36–37. Mr. Di Giorgio was a
sophisticated businessman. He sold houses, ran a mortgage-lending
business, and sold mortgage-backed securities. He had employees and
agents and dealt with banks, title companies, homebuyers, and the
federal government.

        Various “badges of fraud” may indicate fraudulent intent.
Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992); Clark, T.C.
Memo. 2021-114, at *37. The existence of any one badge is not
dispositive, but multiple badges together are strong circumstantial
evidence of fraudulent intent. Niedringhaus, 99 T.C. at 211. Badges of
fraud include, but are not limited to: (1) failing to file tax returns,
(2) underreporting income, (3) keeping inadequate records, (4) giving
implausible or inconsistent explanations of behavior, (5) failing to
cooperate with tax authorities, (6) concealing income or assets,
(7) engaging in illegal activities, (8) demonstrating a lack of credibility,
(9) filing false documents (including false tax returns), and (10) dealing
in cash. See, e.g., id.; Kohan v. Commissioner, T.C. Memo. 2019-85,
at *17–18.

             1.     Failing to File Returns

       Mr. Di Giorgio failed to file a corporate income tax return for
Radius CA for 2006 or 2007, and the Commissioner argues that his
failure supplies evidence of fraudulent intent. Despite that failure, Mr.
Di Giorgio reported losses flowing from Radius CA on his individual
income tax return for 2006 and included an employer identification
number for Radius CA. Furthermore, he filed individual income tax
returns for 2005 through 2007. This badge is neutral.
                                    25

[*25]        2.     Underreporting Income

      A pattern of substantially underreporting income over several
successive years can be strong evidence of fraudulent intent. See
Zhadanov v. Commissioner, T.C. Memo. 2002-104, 83 T.C.M. (CCH)
1553, 1560. Such a pattern evinces fraudulent intent “even where the
record is ‘devoid of the usual indicia of fraud.’” Isaacson v.
Commissioner, T.C. Memo. 2020-17, at *48–49 (quoting Otsuki v.
Commissioner, 53 T.C. 96, 107–08 (1969)), aff’d, 129 A.F.T.R.2d 2022-
797 (9th Cir. 2022). Mr. Di Giorgio underreported his income for all
three years in issue by millions. This badge provides strong evidence of
fraudulent intent for each year.

             3.     Maintaining Inadequate Records

       Taxpayers must maintain records sufficient to determine their
tax liability, and a failure to do so can indicate fraudulent intent. I.R.C.
§ 6001; Bradford v. Commissioner, 796 F.2d 303, 307–08 (9th Cir. 1986),
aff’g T.C. Memo. 1984-601. Mr. Di Giorgio failed to produce adequate
books and records for any of his activities, and the Commissioner had to
resort to a bank deposits analysis. This can be evidence of fraudulent
intent. See Purvis v. Commissioner, T.C. Memo. 2020-13, at *38. Mr.
Di Giorgio also failed to produce business records or substantiation to
the Commissioner or the Court, and his explanations regarding his
records (or lack thereof) were not credible. Considering Mr. Di Giorgio’s
sophistication, we infer that he did not maintain the required records or
that any records he maintained would have been unfavorable to his
claims. See Evans v. Commissioner, T.C. Memo. 2010-199, 100 T.C.M.
(CCH) 215, 219, aff’d, 507 F. App’x 645 (9th Cir. 2013). This badge
provides evidence of fraudulent intent for each year in issue.

             4.     Implausible or Inconsistent Explanations

      A taxpayer’s implausible or inconsistent explanations for his
actions may constitute evidence of fraudulent intent. See Bradford v.
Commissioner, 796 F.2d at 307. We may consider a taxpayer’s filings
and testimony as evidence of implausible or inconsistent explanations.
See Goldston v. Commissioner, T.C. Memo. 2011-9, 101 T.C.M. (CCH)
1026, 1028.

      Mr. Di Giorgio offered implausible and inconsistent testimony.
His testimony about his lifestyle during the years in issue was
inconsistent with the documentary record and Ms. Di Giorgio’s
testimony. His testimony about the Russell statement, which allegedly
                                   26

[*26] pertains to a 2005 income item, was internally inconsistent and
inconsistent with his argument on brief. His testimony regarding vehicle
expenses was inconsistent with Ms. Di Giorgio’s testimony. His
argument on brief that he relied on a certified public accountant in 2005
is inconsistent with his testimony that he did not use an accountant
during the years in issue, and it is inconsistent with the returns
themselves, which all indicate he prepared them himself. This badge
supplies evidence of fraud for each year in issue.

             5.     Failing to Cooperate with Tax Authorities

       A taxpayer’s failure to cooperate with tax authorities, including
his failure to cooperate with revenue agents during an examination, can
indicate fraudulent intent. Grosshandler v. Commissioner, 75 T.C. 1,
19–20 (1980). “[M]isleading statements during an audit, even from an
unsophisticated taxpayer, may indicate fraudulent intent.” Clark, T.C.
Memo. 2021-114, at *37.

       Mr. Di Giorgio failed to cooperate with tax authorities. He missed
meetings with the revenue agent and made it difficult to contact him.
He generally failed to provide requested documents and provided
unreliable and false documents to substantiate his income and expenses.
See Le v. Commissioner, T.C. Memo. 2020-27, at *35–36; Energy Rsch.
& Generation, Inc. v. Commissioner, T.C. Memo. 2011-45, 101 T.C.M.
(CCH) 1205, 1216–17. He informed the Commissioner of only one bank
account and a few property sales, whereas the Commissioner found
many more through summonses. See Curtis v. Commissioner, T.C.
Memo. 2013-12, at *15–16, aff’d, 648 F. App’x 689 (9th Cir. 2016)
(finding refusal to cooperate such that the Commissioner had to
summon banks and title companies to obtain information was a badge
of fraud). This badge provides evidence of fraudulent intent for each year
in issue.

             6.     Concealing Income

       If a taxpayer conceals his ownership of assets or covers up sources
of income, such concealment supports a finding of fraud. Spies v. United
States, 317 U.S. 492, 499 (1943). A taxpayer may conceal his income by
revealing some bank accounts but not others during an audit or by using
business bank accounts to pay personal living expenses. Hovind v.
Commissioner, T.C. Memo. 2012-281, at *51–52; Energy Rsch. &
Generation, Inc., 101 T.C.M. (CCH) at 1216; see Vanover v.
Commissioner, T.C. Memo. 2012-79, 103 T.C.M. (CCH) 1418, 1422–23.
                                   27

[*27] Mr. Di Giorgio concealed income. He failed to disclose all but one
of his bank accounts. He used Radius CA’s bank accounts to pay
personal expenses, but Radius CA did not report paying him wages or
issue him Forms 1099, and he did not report all the income he received
from Radius CA on his returns. Meanwhile, he offset Radius CA’s
income for 2005 with erroneous deductions and reported a Schedule E
loss for 2006 without filing Form 1120S or otherwise documenting
Radius CA’s income and expenses. See Purvis, T.C. Memo. 2020-13,
at *40–41 (finding this badge favored a finding of fraud where taxpayers
used their business to pay personal expenses such as mortgages, car
loans, and personal credit cards, but the business did not issue Forms
W–2 or Forms 1099, and they did not report those amounts as income,
so they concealed its receipt). For each year in issue, he omitted
substantial income from Radius FL, which issued him a Form W–2 but
was not part of the examination. He attempted to conceal Radius FL as
a source of income by attaching a substitute Form W–2 to his return and
listing himself as his employer instead of Radius FL. This was a
deliberate attempt to conceal income, which provides evidence of fraud.
This badge supplies evidence of fraud for each year in issue.

             7.     Engaging in Illegal Activities

       Engaging in illegal activities, even if the taxpayer is not charged
with a crime, is circumstantial evidence of fraud. Niedringhaus, 99 T.C.
at 211; Hovind, T.C. Memo. 2012-281, at *54–55. Mr. Di Giorgio and
Radius CA earned income in 2005 and 2006 by violating securities laws.
See Meier v. Commissioner, 91 T.C. 273, 302–03 (1988) (finding “lack of
potential for criminal punishment or penalty” was “a distinction without
a difference” where a taxpayer reaped ill-gotten gains by breaching
fiduciary duties to his employer, but no criminal charges were filed).
They obtained profits of at least $1,427,095 through fraud. Mr.
Di Giorgio failed to report at least some of those profits; in 2006, he
failed to file a corporate return for Radius CA and reported a net loss
from Radius CA on his Form 1040. Thus, he failed to report income
earned through illegal, fraudulent activities. This badge provides
evidence of fraudulent intent for 2005 and 2006.

             8.     Lack of Credibility

       Mr. Di Giorgio’s testimony was not credible. It was inconsistent
with other witnesses’ testimony and the documentary record. We have
addressed myriad inconsistencies. The contrast between his actual
lifestyle and the lifestyle he claimed to lead particularly discredits him
                                    28

[*28] given the weight of evidence. This badge provides evidence of
fraudulent intent for each year in issue.

             9.     Filing False Documents

       Filing false documents indicates a taxpayer’s intent to evade
income tax. See Harrington v. Commissioner, T.C. Memo. 2021-95,
at *40, aff’d, No. 22-9000, 2022 WL 17333080 (10th Cir. Nov. 30, 2022).
That includes filing a return that omits income or contains a false
response. See id. at *39–40. Mr. Di Giorgio filed false returns for each
year in issue. All the returns at issue omitted substantial income.
Moreover, he reported rental real estate losses on property that was
used by family for personal purposes. He also submitted false documents
during the examination, including fabricated invoices for expenses and
a fabricated statement as to ownership of an entity. This badge supplies
evidence of fraudulent intent for each year in issue.

            10.     Conclusion as to Fraud Penalty

      For each year in issue, the Commissioner established by clear and
convincing evidence that Mr. Di Giorgio underpaid his taxes and that
those underpayments were due to fraud. The section 6663 penalty
applies.

IV.   Innocent Spouse Relief

       Finally, we address whether Ms. Di Giorgio is entitled to innocent
spouse relief under section 6015 for 2007. The Commissioner concedes
that Ms. Di Giorgio is entitled to relief under section 6015(f). On brief,
the Commissioner more specifically concedes that Ms. Di Giorgio is
entitled to relief because “[w]hen she signed the 2007 individual income
tax return, she lacked the sophistication to have reason to know of the
understatements at issue in this case, it would be an undue financial
hardship for her to be denied relief, and denying her relief would be
inequitable given her circumstances.” Mr. Di Giorgio opposes relief.

      A.     General Rules

        Generally, married taxpayers may elect to file a joint federal
income tax return. I.R.C. § 6013(a). Upon electing to file jointly, each
spouse is jointly and severally liable for the entire tax due for that year.
I.R.C. § 6013(d)(3). In certain circumstances, however, a spouse who
filed a joint return may seek relief from joint and several liability under
the procedures in section 6015. I.R.C. § 6015(a). Section 6015(a) allows
                                      29

[*29] a spouse to seek relief from joint and several liability under
subsection (b) or, if eligible, to allocate the liability according to
subsection (c). If a taxpayer does not qualify for relief under subsection
(b) or (c), the taxpayer may be eligible for equitable relief under
subsection (f).

        The taxpayer generally bears the burden of proving that he or she
is entitled to section 6015 relief. Rule 142(a); Alt v. Commissioner, 119
T.C. 306, 311 (2002), aff’d, 101 F. App’x 34 (6th Cir. 2004). However, if
the Commissioner concedes that the taxpayer is entitled to relief and
the nonrequesting spouse opposes relief, it is an open question of
whether the burden shifts to the nonrequesting spouse. See Stergios v.
Commissioner, T.C. Memo. 2009-15, 97 T.C.M. (CCH) 1057, 1059.
Because the evidence clearly weighs in favor of relief, we do not need to
decide who bears the burden. See id. The scope and standard of our
review in cases involving relief from joint and several income tax
liability are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009).

       B.     Section 6015(b)

        Section 6015(b)(1) provides that a requesting spouse is entitled to
relief if all five of the following requirements are satisfied: (A) a joint
return was filed for the taxable year; (B) there was an understatement
of tax attributable to an erroneous item of the nonrequesting spouse;
(C) at the time of signing the return, the requesting spouse did not know
and did not have reason to know of the understatement; (D) taking into
account all the facts and circumstances, it is inequitable to hold the
requesting spouse liable for the deficiency in tax attributable to the
understatement; and (E) the requesting spouse sought relief within two
years of the first collection activity relating to the liability. Alt, 119 T.C.
at 313.

       Three requirements are clearly satisfied. The Di Giorgios filed a
joint return, the understatement is attributable to erroneous items of
Mr. Di Giorgio, and because the Commissioner has not commenced
collection action, Ms. Di Giorgio’s request was timely. Thus, she will
qualify for relief if she satisfies section 6015(b)(1)(C) (knowledge
requirement) and section 6015(b)(1)(D) (inequity requirement). We look
at cases interpreting former section 6013(e)(1) when analyzing parallel
provisions of section 6015. See Korchak v. Commissioner, T.C. Memo.
2006-185, 92 T.C.M. (CCH) 199, 213. The requirements in section
6015(b)(1)(C) and (D) are “virtually identical to” the requirements of
former section 6013(e)(1)(C) and (D), so cases analyzing the latter are
                                     30

[*30] instructive here. Crouse v. Commissioner, T.C. Memo. 2011-97,
101 T.C.M. (CCH) 1456, 1468; Doyel v. Commissioner, T.C. Memo. 2004-
35, 87 T.C.M. (CCH) 960, 965.

              1.     Knowledge Requirement

       Ms. Di Giorgio must have lacked actual or constructive knowledge
of the understatement when she signed the 2007 return. The main
contributors to the understatement were unreported income (including
retirement account distributions, dividends, and $1,409,068 of general
unreported income), disallowed itemized deductions totaling $51,532,
and disallowed losses from Schedule E rental real estate activities
totaling $36,939. We analyze Ms. Di Giorgio’s knowledge of these items.

                     a.     Actual Knowledge

       The regulations define actual knowledge. Treas. Reg. § 1.6015-
3(c). Actual knowledge of omitted income means knowledge that the
amount of income was received. Treas. Reg. § 1.6015-3(c)(2)(i)(A), (ii), (4)
(example 4). Actual knowledge of erroneous deductions or credits
generally means knowledge of the facts that made the item not
allowable. Id. subdiv. (i)(B)(1). If the deduction was fictitious or inflated,
actual knowledge means knowledge that the expenditure was not
incurred or not incurred to the extent reported. Id. subdiv. (i)(B)(2).
Knowledge of an erroneous item’s source alone is insufficient. Treas.
Reg. § 1.6015-3(c)(2)(iii).

       Ms. Di Giorgio did not know of the unreported income and
erroneous deductions. She did not have access to the accounts included
in the bank deposits analysis, and there is no evidence that she knew
about the unreported income that was deposited in them. All she knew
about Mr. Di Giorgio’s business was that he sold houses. Radius CA only
sold one house in 2007 (to Mr. Di Giorgio), and Ms. Di Giorgio did not
know whether Mr. Di Giorgio or Radius CA owned the home during the
years in issue. Even though her name was used to sign the corporate
warranty deed, she did not recognize her signature or know what the
document was. Mr. Di Giorgio deposited the proceeds from the sale, most
of which he borrowed, in his separate bank account.

                     b.     Constructive Knowledge

      A requesting spouse has constructive knowledge of an
understatement if a reasonably prudent taxpayer in her position at the
time she signed the return could be expected to know that (1) the tax
                                          31

[*31] liability stated was erroneous or (2) that further inquiry was
warranted. Kistner v. Commissioner, 18 F.3d 1521, 1525 (11th Cir. 1994)
(citing Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989),
aff’g T.C. Memo. 1988-63), rev’g T.C. Memo. 1991-463; Hopkins v.
Commissioner, 121 T.C. 73, 77–78 (2003); Treas. Reg. § 1.6015-2(c). A
“duty of inquiry” arises where the circumstances put the requesting
spouse on notice of the possibility of an understatement. Jacobsen v.
Commissioner, T.C. Memo. 2018-115, at *14, aff’d, 950 F.3d 414 (7th Cir.
2020). The requesting spouse has constructive knowledge where the
duty is triggered but not discharged. Id. at *14–15. We generally apply
the same circumstantial test to determine whether the requesting
spouse had a reason to know or duty to inquire (which are both forms of
constructive knowledge). Kistner v. Commissioner, 18 F.3d at 1525;
Jacobsen, T.C. Memo. 2018-115, at *15.

       Whether a requesting spouse has constructive knowledge is a
subjective test and depends on the circumstances. See Podlucky v.
Commissioner, T.C. Memo. 2022-45, at *25; Treas. Reg. § 1.6015-2(c).
We consider the following factors: (1) the requesting spouse’s level of
education; (2) the requesting spouse’s involvement in the family’s
business and financial affairs; (3) the presence of expenditures that
appear lavish or unusual when compared to the family’s past standard
of living; and (4) the nonrequesting spouse’s evasiveness and deceit
about the family’s finances. Stevens, 872 F.2d at 1505. 5

                               i.      Level of Education

       Ms. Di Giorgio had a high school education and completed some
college nursing courses in the Philippines. From her testimony at trial,
nearly 15 years after the years in issue, it was evident that English is
not her first language. She had no business or accounting background.
See Taft, T.C. Memo. 2017-66, at *7 (deciding this factor in favor of a
taxpayer with a degree in nursing but no business background). We have
frequently decided this factor in favor of taxpayers who lack education
in business, accounting, or tax, even if the taxpayer is highly educated.

        5 Stevens predated section 6015(b), but we continued applying Stevens after

section 6015(b) and regulations thereunder were enacted. See, e.g., Taft v.
Commissioner, T.C. Memo. 2017-66, at *6–9. The regulations identify six nonexclusive
factors that are relevant to the constructive knowledge inquiry that largely overlap
with the factors laid out in Stevens. See Jacobson, T.C. Memo. 2018-115, at *16; Treas.
Reg. § 1.6015-2(c).
                                         32

[*32] Wang v. Commissioner, T.C. Memo. 2014-206, at *20. This factor
weighs in Ms. Di Giorgio’s favor.

                               ii.     Involvement in Business and Financial
                                       Affairs

       Ms. Di Giorgio’s involvement in the family’s business and
financial affairs was limited. She did not work in 2007 and knew little
about Mr. Di Giorgio’s business activities. They did not share accounts,
and Mr. Di Giorgio gave her money as needed. She was not primarily
responsible for making financial decisions or managing household
expenses. She played no role in preparing the 2007 return and had never
seen a U.S. tax return before the year she signed it. We have decided
this factor in favor of taxpayers who were more involved than Ms.
Di Giorgio. See, e.g., Juell v. Commissioner, T.C. Memo. 2007-219, 94
T.C.M. (CCH) 143, 147–48 (finding involvement limited to paying
routine bills out of joint account); Hinds v. Commissioner, T.C. Memo.
1988-426, 56 T.C.M. (CCH) 104, 106 (finding extent of involvement was
accepting money from the nonrequesting spouse to pay household
expenses and purchase food and clothing). This factor weighs in her
favor.

                               iii.    Lavish Expenditures

       Ms. Di Giorgio acknowledges that her standard of living improved
because of her relationship with Mr. Di Giorgio. 6 However, the relevant
question is whether any of their expenditures in 2007 were lavish or
unusual compared to their past spending habits. See Hinds, 56 T.C.M.
(CCH) at 106 (deciding this factor in favor of a taxpayer who consistently
lived an affluent lifestyle throughout her marriage). In addressing this
question, we bear in mind that Ms. Di Giorgio’s frame of reference is
quite short. She met Mr. Di Giorgio in person in January 2006, moved
in with him in July 2006, and married him in September 2006. During
that time, he received over $1 million of nontaxable life insurance
proceeds from the recent death of his first wife. From 2006 to 2007, their
standard of living did not fluctuate. No expenditures were lavish in
comparison to her prior experience with Mr. Di Giorgio. This factor
weighs in her favor.

       6 Mr. Di Giorgio argues that we should take her testimony about their lifestyle

with a grain of salt “given just one year earlier she lived in a third world country
without reliable electric or running water.”
                                    33

[*33]                      iv.    Mr. Di Giorgio’s Evasiveness and Deceit

       Mr. Di Giorgio was evasive and deceptive. He was not forthright
with Ms. Di Giorgio about his legal issues, and during the years in issue,
Ms. Di Giorgio was unaware of them. When he gave her the signature
page of the return, he refused to tell her what it was and belittled her
by telling her she would not understand. She was genuinely naive and
trusted her husband, but she discovered that he did not have her best
interest in mind after the years in issue. This factor weighs in her favor.

                           v.     Constructive Knowledge Conclusion

       On the basis of the factors above, Ms. Di Giorgio could not be
expected to know that the tax liability stated on the return was
erroneous or that further investigation was warranted. Mr. Di Giorgio
gained her commitment and trust, then began mistreating her (verbally
and emotionally) when she left her home country to marry him. He was
controlling and evasive, but despite his behavior, she had no reason to
question him financially, because she believed he was successful and
was unaware of his legal problems. He pressured her into signing
returns without seeing them, but even if she had, it would have been
difficult for her to question him. She had no business or financial
background, little knowledge about the business, and no access to the
relevant financial records. Ms. Di Giorgio lacked constructive
knowledge.

             2.     Inequity Requirement

        We consider all the facts and circumstances in determining
whether it is inequitable to hold a requesting spouse jointly and
severally liable. I.R.C. § 6015(b)(1)(D); see Treas. Reg. § 1.6015-2(d). We
consider factors utilized in determining “inequity” in the context of
section 6015(f). See Juell, 94 T.C.M. (CCH) at 148. For guidance, we may
look to, but are not bound by, Revenue Procedure 2013-34, 2013-43
I.R.B. 397. Parker v. Commissioner, T.C. Memo. 2022-110, at *5 (citing
Pullins v. Commissioner, 136 T.C. 432, 438–39 (2011)). The revenue
procedure outlines the following nonexclusive factors: (a) marital status;
(b) whether the requesting spouse will suffer economic hardship absent
relief; (c) whether the requesting spouse had actual or constructive
knowledge of the understatement; (d) whether either spouse had a legal
obligation to pay the liability; (e) whether the requesting spouse
significantly benefited from the understatement; (f) whether the
requesting spouse has made a good faith effort to comply with income
                                     34

[*34] tax laws in years following the year of the understatement; and
(g) whether the requesting spouse was in poor physical or mental health
when the joint return was filed. Rev. Proc. 2013-34, § 4.03, 2013-43
I.R.B. at 400–03. We perform a balancing analysis of these factors below.

                     a.     Marital Status

        If the requesting spouse is no longer married to the nonrequesting
spouse, this factor weighs in favor of relief. Id. § 4.03(2)(a), 2013-34 I.R.B
at 400; see Hollimon v. Commissioner, T.C. Memo. 2015-157, at *10–11.
A requesting spouse is treated as “no longer married” if she is divorced
or legally separated from the nonrequesting spouse, or if she has not
been a member of the same household at any time during the 12-month
period preceding the determination. Rev. Proc. 2013-34, § 4.03(2)(a). Ms.
Di Giorgio has not been a member of the same household as Mr.
Di Giorgio, whom she is divorcing, since 2019. This factor weighs in favor
of relief.

                     b.     Economic Hardship

       If denying relief from the joint and several liability will cause the
requesting spouse to suffer economic hardship, this factor weighs in
favor of relief. The requesting spouse will suffer economic hardship if
paying all or part of the liability would render the requesting spouse
unable to pay reasonable basic living expenses. Id. § 4.03(2)(b), 2013-43
I.R.B. at 401. A relevant consideration in determining economic
hardship is the requesting spouse’s income compared to the federal
poverty level. See 42 U.S.C. § 9902(2). If the requesting spouse’s income
is below 250% of this amount, the factor weighs in favor of relief unless
she has assets from which she can pay the tax liability while still
meeting her basic living expenses. Rev. Proc. 2013-34, § 4.03(2)(b). At
the time of trial in 2021, 250% of the federal poverty level for a family of
three in Florida was $54,900 ($21,960 × 250%). See Annual Update of
the HHS Poverty Guidelines, 86 Fed. Reg. 7732, 7733 (Feb. 1, 2021).

       Ms. Di Giorgio earns $15 per hour, but her hours fluctuate
depending on whether she is assigned to a client. At the time of trial,
she was not working because her client had recently died. However, Ms.
Di Giorgio has reported monthly income as high as $3,100, which when
annualized falls well below the federal poverty level. Further, she has
limited assets and significant liabilities, and her monthly reasonable
basic living expenses exceed her monthly income. Paying any part of the
                                     35

[*35] 2007 liability would cause Ms. Di Giorgio to suffer significant
hardship. This factor weighs in favor of relief.

                    c.     Knowledge or Reason to Know

        If the requesting spouse had knowledge or reason to know about
the understatement in signing the return, this factor weighs against
relief. Actual knowledge under Revenue Procedure 2013-34 is the same
as under section 6015(b). See Freman v. Commissioner, T.C. Memo.
2023-10, at *26. Constructive knowledge essentially considers the same
facts and circumstances discussed above. See Rev. Proc. 2013-34,
§ 4.03(2)(c)(iii), 2013-43 I.R.B. at 402. Ms. Di Giorgio lacked actual or
constructive knowledge of the understatement when she signed the
return. This factor weighs in favor of relief.

                    d.     Legal Obligation

      If the nonrequesting spouse has the sole legal obligation to pay
the outstanding income tax liability pursuant to a divorce decree or
agreement, this factor weighs in favor of relief. If the spouses are not
separated or divorced, or the divorce decree or agreement is silent as to
such obligation, this factor is neutral. At the time of trial, neither spouse
had the sole legal obligation. This factor is neutral.

                    e.     Significant Benefit

       A “significant benefit” is any benefit exceeding normal support,
such as luxury assets and expensive vacations. Id. § 4.03(2)(e), 2013-43
I.R. B. at 402; see also Treas. Reg. § 1.6015-2(d). If the requesting spouse
significantly benefited from the omitted income, this factor weighs
against relief. Rev. Proc. 2013-34, § 4.03(2)(e); see also Treas. Reg.
§ 1.6015-2(d). If the nonrequesting spouse controlled the household and
business finances or there was abuse such that the nonrequesting
spouse made the decision on spending funds for a lavish lifestyle, then
this mitigates this factor so that it is neutral. See Rev. Proc. 2013-34,
§ 4.03(2)(e). According to Revenue Procedure 2013-34, § 4.03(2)(c)(iv),
2013-43 I.R.B. at 402, “[a]buse comes in many forms and can include
physical, psychological, sexual, or emotional abuse, including efforts to
control, isolate, humiliate, and intimidate the requesting spouse, or to
undermine the requesting spouse’s ability to reason independently and
be able to do what is required under the tax laws.”

      Ms. Di Giorgio benefited from the understatement only to the
extent of the Di Giorgios’ shared lifestyle, and Mr. Di Giorgio completely
                                    36

[*36] controlled family finances. He would have lived the same lifestyle
regardless of whether Ms. Di Giorgio was part of it, and Ms. Di Giorgio
reaped no individual benefit. This factor is neutral.

                    f.     Compliance with Tax Laws

        The requesting spouse’s good faith efforts to comply with income
tax laws in the years following the year to which her request relates
weigh in favor of relief. To the extent the requesting spouse continued
filing joint returns with the nonrequesting spouse, the factor is neutral.
There is no evidence in the record regarding Ms. Di Giorgio’s compliance
with tax laws after 2007, so this factor is neutral.

                    g.     Physical and Mental Health

       If the requesting spouse was physically or mentally ill when she
signed the joint return, this factor weighs in favor of relief. If not, this
factor is neutral. Ms. Di Giorgio did not have any mental or physical
health problems when she signed the returns, so this factor is neutral.

                    h.     Inequity Conclusion

      Of the factors above, three weigh in favor of relief, and four are
neutral. She lacked knowledge of Mr. Di Giorgio’s fraudulent reporting
and unreported income, she has been living apart from him since 2019
and is divorcing him, and paying the liabilities would be a significant
economic hardship for her. Given the circumstances, it would be
inequitable to deny her relief.

      C.     Conclusion as to Innocent Spouse Relief

       Ms. Di Giorgio is entitled to innocent spouse relief for 2007
because she has demonstrated that she satisfies the requirements of
section 6015(b).

V.    Conclusion

      Mr. Di Giorgio failed to prove any error in any of the
Commissioner’s determinations beyond the concessions already made by
the Commissioner. The Commissioner proved by clear and convincing
evidence that those underpayments were attributable to fraud. Ms.
Di Giorgio is entitled to innocent spouse relief under section 6015 for
2007. Accordingly, Mr. Di Giorgio is solely liable for an income tax
                                   37

[*37] deficiency, a section 6651(a)(1) addition to tax, and a section 6663
penalty for each year in issue.

      To reflect the foregoing and the parties’ concessions,

      Decisions will be entered under Rule 155.