ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
TC Memo. 2009-203, September 9, 2009.
MEMORANDUM
OPINION
I. Fraud Penalty
We begin with our consideration of the issue of fraud because, absent fraud, the period of limitations may no longer be open for respondent's assessment of deficiencies in the income tax of the Bells for taxable years 1996, 1997, and 1998. See sec. 6501(c)(1); see, e.g., Langworthy v. Commissioner [ Dec. 52,747(M)], T.C. Memo. 1998-218.
In the case of the filing of a false or fraudulent return with intent to evade tax, the tax may be assessed at any time. Sec. 6501(c)(1). If the return is fraudulent in any respect, it deprives the taxpayer of the bar of the statute of limitations for that year. Lowy v. Commissioner [ 61-1 USTC ¶9350], 288 F.2d 517, 520 (2d Cir. 1961), affg. [ Dec. 24,072(M)], T.C. Memo. 1960-32. “Thus where fraud is alleged and proven, respondent is free to determine a deficiency with respect to all items for the particular taxable year without regard to the period of limitations.” Colestock v. Commissioner [ Dec. 49,703], 102 T.C. 380, 385 (1994). Moreover, if a joint return was filed, proof of the fraudulent intent as to one spouse lifts the bar of the statute of limitations as to both spouses. Vannaman v. Commissioner [ Dec. 30,109], 54 T.C. 1011, 1018 (1970). However, the Commissioner must show fraud clearly and convincingly as to both taxpayers on a joint return for each of them to be liable for the fraud penalty. Balot v. Commissioner [ Dec. 54,287(M)], T.C. Memo. 2001-73.
The fraud penalty is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from a taxpayer's fraud. See Helvering v. Mitchell [ 38-1 USTC ¶9152], 303 U.S. 391, 401 (1938). Fraud is intentional wrongdoing on the part of the taxpayer with the specific purpose to evade a tax believed to be owing. See McGee v. Commissioner [ Dec. 32,219], 61 T.C. 249, 256 (1973), affd. [ 75-2 USTC ¶9723], 519 F.2d 1121 (5th Cir. 1975).
The Commissioner has the burden of proving fraud by clear and convincing evidence. Sec. 7454(a); Rule 142(b). The Commissioner's burden of proof under section 6501(c)(1) is the same as that imposed by section 6663. See Pennybaker v. Commissioner [ Dec. 49,941(M)], T.C. Memo. 1994-303. To satisfy the burden of proof, the Commissioner must show: (1) An underpayment exists; and (2) the taxpayer intended to evade taxes known to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of taxes. See Parks v. Commissioner [ Dec. 46,545], 94 T.C. 654, 660-661 (1990). The Commissioner must meet this burden through affirmative evidence because fraud is never presumed. Petzoldt v. Commissioner [ Dec. 45,566], 92 T.C. 661, 699 (1989); see also Beaver v. Commissioner [ Dec. 30,380], 55 T.C. 85, 92 (1970). Once the Commissioner has established by clear and convincing evidence that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud. Sec. 6663(b).
A. Underpayment
An “underpayment” is generally defined (insofar as relevant to the instant case) as the amount by which the tax imposed by the Code exceeds the amount shown as the tax by the taxpayer on his return. See sec. 6664(a). Respondent contends that the evidence clearly and convincingly shows that the OEL transactions lacked economic substance and that the money transferred by BCM to NESL, and later ILS, as part of those transactions was income to Mr. Bell, in the form of wages from BCM, which he failed to report on his returns. Respondent contends that the wages were compensation for Mr. Bell's personal services. Respondent also relies on the doctrine of constructive receipt of the funds because Mr. Bell had unfettered control over the funds. Furthermore, respondent argues that Foxworthy should be disregarded as Mr. Bell's alter ego because it did not have a legitimate business purpose and was used as a way for Mr. Bell to claim deductions for his personal expenses and later to operate the tax deed business. Additionally, respondent argues that the Bells fraudulently understated their income by overstating deductions.
1. Economic Substance of the OEL Transactions
Mr. Bell argues that the OEL transactions in which he engaged beginning in 1996 were pursuant to a valid nonqualified “deferred compensation plan” and not done solely to avoid income tax. Respondent argues that the OEL transactions lack economic substance and therefore should be disregarded and that the payments from BCM to NESL, and later to ILS, for Mr. Bell's services constituted wages to Mr. Bell at the time BCM made the payments. We agree with respondent.
Income is taxed to the person who earns it and enjoys the benefit of it when paid. See Helvering v. Horst [ 40-2 USTC ¶9787], 311 U.S. 112, 119 (1940); Corliss v. Bowers [ 2 USTC ¶525], 281 U.S. 376, 378 (1930); cf. Commissioner v. P.G. Lake, Inc. [ 58-1 USTC ¶9428], 356 U.S. 260, 267 (1958); Old Colony Trust Co. v. Commissioner [ 1 USTC ¶408], 279 U.S. 716, 729 (1929). Moreover, the taxpayer who earns income may not avoid taxation through anticipatory arrangements no matter how clever or subtle. Lucas v. Earl [ 2 USTC ¶496], 281 U.S. 111, 115 (1930).
The economic substance of a transaction, rather than its form, controls for Federal income tax purposes. Gregory v. Helvering [ 35-1 USTC ¶9043], 293 U.S. 465 (1935). We conclude that the OEL transactions lacked economic substance and, despite petitioners' contentions, were not made pursuant to a valid nonqualified deferred compensation plan.
Mr. Bell argues that throughout the course of the OEL transactions from 1996 through 2001 he properly deferred over $7 million of income. Moreover, Mr. Bell argues that the benefits were subject to a substantial risk of forfeiture. Mr. Bell argues that the money was sent offshore, ultimately to RHB Corp., where he did not have control over the money; instead he only recommended investments to Elfin. Furthermore, Mr. Bell argues that the OEL transactions have economic substance because the payees of the money, NESL and ISL, were legitimate businesses that leased Mr. Bell's services to BCM. According to Mr. Bell, the OEL transactions offered him greater retirement savings over his previous Salary Reduction Simplified Employee Pension Plan (SARSEP) and to disallow the OEL plan respondent would be condemning retirement planning.
The December 1996 BCM transfer of $800,000 to NESL, was BCM's first transfer to NESL and the only such transfer made in 1996. Mr. Bell reported only $75,000 of income for that year, even though the alleged arrangement among Montrain, NESL, and BCM did not purport to take effect until December 1, 1996. From 1996 through 2000 Mr. Bell continued to report only $75,000 of wages annually. For 2001 Mr. Bell reported $37,500 in wages; the OEL transactions were terminated that year. Mr. Bell alleges that he became an employee of Montrain, an Irish corporation, that Montrain leased his services to NESL, and that NESL, in turn, leased his services to BCM. During the years in issue Mr. Bell continued to perform the same services for BCM as he had in the past. Mr. Bell did not take instructions or orders from anyone at Montrain or NESL. The documents that purport to establish Mr. Bell's employment with Montrain were not completed until November 1997, nearly a year after the purported deferred compensation plan was alleged to have taken effect and BCM's transfer of the $800,000.
Aside from a few days' delay in processing the transactions from entity to entity, Mr. Bell at all times effectively had control of and access to the funds transferred and used the funds at his discretion. The initial $800,000 transfer, less fees, was managed by Mr. Weaver in an account with Rydex Investments. The money in the Rydex Investments account was later transferred to the Rossendale/RHB Corp. Schwab account, which Mr. Bell controlled. We conclude that respondent has shown by clear and convincing evidence that, from the beginning, the money BCM transferred as part of the OEL transactions was set aside for Mr. Bell's use and was not part of any valid deferred compensation plan. Indeed, at one point, Mr. Bell complained to Mr. Reiserer of the interest he was losing as a result of the delay, and Mr. Reiserer reminded him of the immense tax savings. Mr. Reiserer's response did not satisfy Mr. Bell, and he continued to complain.
Mr. Bell argues that the OEL transactions offered him a deferred compensation plan that was payable to him at age 75. Furthermore, Mr. Bell argues that the Montrain, and later Pixley and Fitzwilliam, plans were discretionary and subject to the exclusive discretion of those entities as his employer. Mr. Bell's argument is not persuasive. Mr. Bell, by using the Rydex Investments account and later the Schwab accounts of the Nevis corporations, effectively had access to the funds a few days after BCM transferred the money.
The money transferred in the OEL transactions was ultimately used in various ways. The Bells' Northside residence, selected by the Bells, was purchased in the name of Foxworthy using funds from Helston's and Ballyclare's Schwab accounts. Mr. Bell, in collaboration with Mr. Reiserer, set up three Nevis corporations along with corresponding brokerage accounts at Schwab. The three Schwab accounts were set up at the Cobb County, Georgia, branch, the closest bank branch to BCM's office. Additionally, Mr. Bell used the signature stamp of Mr. Zarrett without his permission in order to obtain power of attorney over the funds. During the course of the OEL transactions, Mr. Bell primarily used RHB Corp. as the repository for the money transferred from BCM.
Mr. Bell, in collaboration with Mr. Reiserer, set up the purchase of Northside using the appearance of loans from Ballyclare and Helston to Foxworthy of $1,080,000 and $1,222,060, respectively. Foxworthy purchased Northside from Sam Foreman in October 1997, using a $2,110,000 wire transfer from a Schwab account in Foxworthy's name. The money in the Schwab account, however, came from Ballyclare and Helston. The money from Ballyclare and Helston came from the Schwab account in Mr. Reiserer's name. The source of the funds in the Reiserer account came from liquidating stock received pursuant to journal entry transfers from four other Schwab accounts in the names of R&P Partnership, Ron H. Bell TTEE; Hoyt Bell Revocable Trust, Ron H. Bell TTEE; Roberta L. Bell Revocable Trust; and Kelli Bell.
Before purchasing Northside, Foxworthy had no assets. Foxworthy's address in Reno was a mail forwarding service that forwarded mail to BCM in Atlanta. Mr. and Mrs. Bell discovered Northside and visited the property before Mr. Bell instructed Foxworthy to purchase it. Although Foxworthy was the entity that, in name, purchased Northside, the homeowners insurance policy listed Mrs. Bell's maiden name, Patricia Small, for the insured. Foxworthy was listed only as an additional insured. After Northside was purchased, Mr. and Mrs. Bell moved in.
From the time Mr. Bell established the RHB Corp. Schwab account, he used the account as the main repository of the money transferred as part of the OEL transactions. Mr. Bell authorized Mr. Weaver to act under a power of attorney in order to cover up a direct link between the RHB Corp. Schwab account and himself. However, Mr. Bell maintained access to the account. Mr. Bell used the RHB Corp. account several times to fund the tax deed business that he began in 1999. After a few days offshore, the money transferred as part of the OEL transactions reverted to Mr. Bell's control.
Additionally, Mr. Bell's control and use of the funds transferred offshore is shown by his $550,000 loan to the church he attended, the Unity Church. The funds came from the RHB Corp. Schwab account.
2. Constructive Receipt of Funds Used in OEL Transactions
Mr. Bell argues that the OEL transactions were part of a deferred compensation plan. Mr. Bell's argument fails because, in addition to the reasons already cited, the alleged plan violates the doctrine of constructive receipt. Section 1.451-2, Income Tax Regs., provides in pertinent part:
(a) General rule.—Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions. * * *
The constructive receipt doctrine requires a taxpayer who is on the cash method of accounting to recognize income when the taxpayer has an unqualified, vested right to receive immediate payment of income. See Palmer v. Commissioner [ Dec. 53,968(M)], T.C. Memo. 2000-228. Under the constructive receipt doctrine, a taxpayer may not deliberately turn his back on income otherwise available. See Martin v. Commissioner [ Dec. 47,414], 96 T.C. 814, 823 (1991).
A few days after BCM transferred money to NESL, and later to ISL, the money was wired offshore. After a brief delay in processing the transactions, Mr. Bell requested that the money be placed in the various Schwab accounts. All of the Schwab accounts were controlled by Mr. Bell directly, or through Mr. Weaver, who held a power of attorney on the RHB Corp. Schwab account. Additionally, Mr. Bell had access to the money in the accounts as demonstrated by loans to his church and to Foxworthy for the tax deed business. The agreement that Mr. Bell claims to have entered into with Montrain, and later Pixley and Fitzwilliam, to defer his compensation until age 75 is ineffective to prevent constructive receipt of the money because Mr. Bell had access to and control over the money shortly after BCM transferred it. Consequently, we conclude that the record clearly shows that all of the money BCM transferred as part of the OEL transactions was constructively received by Mr. Bell in the years it was transferred, and it is therefore includable in Mr. Bell's income for those years.
3. Disregard of Foxworthy as Mr. Bell's Alter Ego
Respondent argues that the Court should disregard Foxworthy and treat it as Mr. Bell's alter ego. In Moline Props., Inc. v. Commissioner [ 43-1 USTC ¶9464], 319 U.S. 436, 438-439 (1943), the Supreme Court stated:
The doctrine of corporate entity fills a useful purpose in business life. Whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid or to comply with the demands of creditors or to serve the creator's personal or undisclosed convenience, so long as that purpose is the equivalent of business activity or is followed by the carrying on of business * * *, the corporation remains a separate taxable entity. * * * [Fn. refs. omitted.]
Despite the general rule, however, the corporate form will be disregarded when it is determined that the corporation is a sham. Id. at 439.
Mr. Reiserer formed Foxworthy as a Nevada corporation on August 12, 1996, but until it purchased Northside during 1997 it had no assets, no liabilities, and no employees and had not issued any stock. When the Bells decided to purchase Northside, Mr. Reiserer suggested to Mr. Bell that he use Foxworthy to hold title to Northside. The mailing address used for Foxworthy was a mail forwarding service in Reno that Mr. Bell contends he previously had set up because of identity theft issues.
At the time of Foxworthy's formation, Mr. Reiserer was its president, and Ms. Agee, Mr. Reiserer's law firm associate, was its secretary and treasurer. Because Foxworthy's main asset as of the end of 1997, Northside, was in Atlanta, it needed, for convenience, a local individual to sign documents. Mr. Bell suggested Mr. Comsudes, his employee at BCM. Mr. Comsudes never met Mr. Reiserer and was unaware of the identity of Foxworthy's shareholders. Mr. Bell simply instructed Mr. Comsudes to sign the documents. While he was president of Foxworthy, Mr. Comsudes had no day-to-day duties and followed Mr. Bell's instructions.
Although it was not originally formed for Mr. Bell, once Mr. Bell decided to use Foxworthy to purchase Northside, the record clearly shows that Foxworthy's separateness as a corporation became a sham that was executed by Mr. Bell as eyewash for his scheme to fraudulently underpay his taxes. By interjecting Foxworthy between himself and Northside, Mr. Bell implemented a scheme to deduct his personal living expenses.
When the corporate form did not suit Mr. Bell, he simply ignored it, as illustrated by the holding of the homeowners insurance covering Northside in his wife's maiden name because the rate was less than if it had been in Foxworthy's name. Additionally, Mr. Bell purported to negotiate a fictitious lease between BCM and Foxworthy that was allegedly to be used for office space. We conclude that the lease transaction with Northside, however, was just a device for BCM to claim additional deductions, in this instance related to the Bells' personal residence. Indeed, Mr. Graham, whose name appears on the signature line of the lease on behalf of Foxworthy, testified that he did not sign it. Mr. Graham was not authorized to sign for Foxworthy. Northside had always been zoned as residential property; and since the Bells moved in shortly after purchasing it, they have lived in Northside.
Mr. Bell devised another alleged lease between BCM and “The Whitehall Inn”, which Mr. Bell testified was an assumed name for Foxworthy. We conclude that the lease agreement for the Whitehall Inn, like the one purportedly signed by Mr. Graham, was also a sham. Mr. Comsudes was unaware of the lease agreement and the existence of the Whitehall Inn. The Whitehall Inn lease agreement is purportedly signed by Mr. Graham, whose name appears on the signature line of the lease, but he did not sign it. The leases were additional instances of Mr. Bell's use of Foxworthy, and its apparent assumed name, the Whitehall Inn, to suit his needs. Ms. Sagaert prepared invoices for rent payments that purported to reflect guests staying at Northside, but no guests ever stayed at Northside. To the contrary, Mr. Bell told out-of-town guests doing business with BCM to stay at the Waverly Inn and had Ms. Sagaert prepare false invoices to cover up these facts.
During 1998 Mr. Bell became interested in the tax deed business. Mr. Bell felt that the tax deed business was lucrative and decided to use Foxworthy to invest in the business during 1999. Mr. Bell, despite not being a board member, officer, or employee of Foxworthy, made all of the significant decisions regarding the tax deed business. In order to fund the tax deed business, Mr. Bell arranged a series of alleged loans with various parties, including the three Nevis corporations. By the end of 2001, Mr. Bell had invested nearly $9 million from the OEL transactions in the tax deed business.
Mr. Bell is a skilled businessman, and he turned the tax deed business into a profitable venture. Mr. Bell proposed to alter the terms of a loan by having Foxworthy repay the loan from RHB Corp. by October 2000, only to re-borrow the money at a higher interest rate so that Foxworthy could reduce its income. The October 2000 refinancing transaction further demonstrates the control that Mr. Bell exerted over Foxworthy, despite having no formal role with the corporation. On May 27, 1999, Mr. Bell opened a brokerage account at SunTrust Equitable under Foxworthy's name. In addition to Mr. Bell, Mr. Reiserer and Mr. Comsudes had signature authority over the account. Mr. Kallis, the account representative at SunTrust Equitable, took direction only from Mr. Bell, who identified himself to Mr. Kallis as a consultant.
During 2000 Mr. Bell replaced Mr. Comsudes as president of Foxworthy with Mr. Wilson. Before working for BCM, Mr. Wilson's experience was in special events planning. At BCM Mr. Wilson earned a salary of $30,000 overseeing computer systems and special projects. As president of Foxworthy, Mr. Wilson deferred to Mr. Bell and Mr. Reiserer, although he did consult with Mr. Bell. Mr. Wilson never had contact with Foxworthy's alleged owner, Ruritania.
During March 2000 Mr. Bell indicated to Mr. Reiserer that a bank was willing to extend a $10 million line of credit for Foxworthy to purchase tax deeds. Mr. Bell told Mr. Reiserer that although the bank would finance 75 percent of the money, Mr. Bell himself would have to finance the remaining 25 percent. Foxworthy's tax deed business, despite its success, was Mr. Bell's alter ego, as he made all the crucial decisions, appointed and replaced its officers, funded the business primarily through his OEL transactions money, and acted as its representative with banks.
The record clearly and convincingly demonstrates, and we so conclude, that Foxworthy was Mr. Bell's alter ego in all respects, used to avoid taxation and not for any legitimate business reasons, and is further evidence of Mr. Bell's fraudulent understatement of income. We therefore conclude that Foxworthy, as Mr. Bell's alter ego, should be disregarded. As a result of the disregard of Foxworthy, its gross income of $7,400,759.91, $9,627,935, and $2,421,527 for 1999 through 2001, respectively, is gross income to Mr. Bell. Additionally, Foxworthy's claimed deductions 19 in relation to Northside and the tax deed business, if not otherwise disallowed, are allowable as deductions to Mr. and Mrs. Bell. 20
4. Overstatement of Deductions
It is well settled that a fraudulent understatement of income can result from an overstatement of deductions. Drobny v. Commissioner [ Dec. 43,140], 86 T.C. 1326, 1349 (1986).
BCM claimed deductions for a significant number of expenses that Mr. Bell contends are ordinary and necessary business expenses, including rent to Foxworthy. Mr. Bell, as the sole owner of BCM, reported BCM's gross income on his income tax returns as part of Schedule E. The record clearly establishes that the deductions for the payments to Foxworthy for rent are overstated and evidence of fraudulent underpayment of taxes because the payments in fact disguised personal expenses of the Bells. The rent was allegedly for Northside, Mr. and Mrs. Bell's personal residence. Petitioners contend that BCM needed more office space because it had outgrown its then-current office. However, during 1996 BCM moved to new office space. The record clearly shows that BCM did not need to rent office space from Foxworthy and that the rent payments to Foxworthy were merely a device to disguise personal expenses.
The record also clearly shows that other claimed deductions of BCM were overstated. Accordingly, we conclude that, in addition to the rent expenses claimed as deductions, the other claimed deductions for expenses of BCM were improper and were disguised personal expenses for the purpose of overstating deductions and fraudulently underpaying taxes.
During the years in issue, Mr. Bell should have reported but did not report as income any of the money transferred as part of the OEL transactions. Moreover, Mr. Bell overstated his deductions. Consequently, we hold that the record clearly and convincingly establishes that Mr. Bell underpaid his income tax for each of the years in issue.
B. Fraudulent Intent
The Commissioner must prove that a portion of the underpayment for each taxable year at issue was due to fraud. Sec. 7454(a); see also Profl. Servs. v. Commissioner [ Dec. 39,516], 79 T.C. 888, 930 (1982). The existence of fraud is a question of fact to be resolved from the entire record. See Gajewski v. Commissioner [ Dec. 34,088], 67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383 (8th Cir. 1978). Because direct proof of a taxpayer's intent is rarely available, fraud may be proven by circumstantial evidence, and reasonable inferences may be drawn from the relevant facts. See Spies v. United States [ 43-1 USTC ¶9243], 317 U.S. 492, 499 (1943); Stephenson v. Commissioner [ Dec. 39,562], 79 T.C. 995, 1006 (1982), affd. [ 84-2 USTC ¶9964], 748 F.2d 331 (6th Cir. 1984). A taxpayer's entire course of conduct can be indicative of fraud. See Stone v. Commissioner [ Dec. 30,767], 56 T.C. 213, 223-224 (1971); Otsuki v. Commissioner [ Dec. 29,807], 53 T.C. 96, 105-106 (1969). The following badges of fraud have been used to prove fraud: (1) Understating income, (2) maintaining inadequate records, (3) implausible or inconsistent explanations of behavior, (4) concealment of income or assets, (5) failing to cooperate with tax authorities, (6) engaging in illegal activities, (7) an intent to mislead which may be inferred from a pattern of conduct, (8) lack of credibility of the taxpayer's testimony, (9) filing false documents, (10) failing to file tax returns, and (11) dealing in cash. Bradford v. Commissioner [ 86-2 USTC ¶9602], 796 F.2d 303, 307 (9th Cir. 1986), affg. [ Dec. 41,615(M)], T.C. Memo. 1984-601. No single factor is necessarily sufficient to establish fraud. A combination of factors may constitute persuasive evidence of fraud.
1. Understating Income
As we have found above, Mr. Bell clearly understated his taxable income in each of the taxable years in issue. Mr. Bell should have reported but did not report as wages the money BCM transferred as part of the OEL transactions for 6 consecutive years. Additionally, both Mr. Bell's alter ego Foxworthy and BCM claimed improper deductions for Mr. Bell's disguised living expenses, including maintenance of his personal residence. The disallowed deductions and omitted gross income establish an understatement of Mr. Bell's taxable income for 6 consecutive years, a badge of fraud. See Hicks Co. v. Commissioner [ Dec. 30,920], 56 T.C. 982, 1019 (1971), affd. [ 73-1 USTC ¶9109], 470 F.2d 87 (1st Cir. 1972).
2. Implausible or Inconsistent Explanations of Behavior
Mr. Bell was very successful in business and had developed BCM into a firm managing 1,100 portfolios worth $280 million in aggregate market value by the end of 1995. From 1991 through 1995 Mr. Bell earned an average of $730,455 in annual wages from BCM. Pursuant to the OEL transactions, Mr. Bell claimed that he earned only $75,000 each year, excluding 2001. According to Mr. Bell, the money BCM transferred as part of the transactions, a sum in excess of $7 million, was nonqualified deferred compensation, subject to the control of Mr. Bell's alleged new employer, Montrain, and to a substantial risk of forfeiture until he reached the age of 75. Mr. Bell's argument is flatly contradicted by the record—as we found above, he exerted control over the money at every turn.
3. Concealment of Income or Assets
From the moment Mr. Bell entered into the OEL transactions, we conclude that his goal was to find a way to conceal the money being transferred. The web of organizations and third parties Mr. Bell and Mr. Reiserer conspired to devise clearly was an elaborate scheme designed solely for the purpose of avoiding taxation. In addition to forming corporations allegedly located in Nevis, Mr. Bell used his alter ego Foxworthy to repatriate the money allegedly transferred to those entities. Foxworthy, allegedly owned by Ruritania, a foreign entity, was used to purchase Northside, the property in which Mr. and Mrs. Bell lived in Atlanta, a scheme clearly designed to give Foxworthy an avenue to deduct personal living expenses of the Bells. When Foxworthy purchased Northside, the Bells used Mrs. Bell's maiden name on the homeowners insurance in order to obtain a lower rate and to conceal their true ownership of Northside. Additionally, Mr. Bell insured his Rolls Royce under his name but claimed it was a Foxworthy asset. Once Mr. Bell became involved in the tax deed business and it became successful, he renegotiated alleged loans between organizations he controlled in order to lessen Foxworthy's tax burden.
Mr. Bell was aware that his involvement in many of the transactions in issue would appear “troublesome”, so he frequently used third parties both with and without their permission in his attempt to conceal a link between himself and the funds and assets. Mr. Comsudes, Mr. Bell's employee at BCM, became the president of Foxworthy because Mr. Bell needed an individual in Atlanta to use as a figurehead on paper while Mr. Bell maintained control. Mr. Comsudes signed whatever documents Mr. Bell put in front of him. Later, Mr. Bell replaced Mr. Comsudes with Mr. Wilson. Mr. Wilson admittedly had more involvement with the activities of Foxworthy than did Mr. Comsudes, but Mr. Bell still maintained control. Mr. Bell asked Mr. Graham to stay on at Northside and help maintain the home after Foxworthy purchased it. Mr. Bell used Mr. Graham's name without his knowledge as a signatory on lease documents. Mr. Graham did not sign any lease and was not authorized to do so, yet his name appears as Foxworthy's representative on two alleged leases. Additionally, Mr. Graham's name appears without his permission on Foxworthy's request for an extension to file its 1997 income tax return. Furthermore, Mr. Bell used Mr. Zarrett's signature stamp without his permission. The record clearly establishes that by the use of third party names Mr. Bell attempted to conceal the true nature of the Northside purchase and subsequent lease agreements.
4. An Intent To Mislead
Mr. Bell's behavior, described above, in relation to the concealment of income and assets, also indicates an intent to mislead. Additionally, when the IRS began investigating Mr. Bell, he insisted on having the investigation take place in Daytona Beach, Florida, rather than Atlanta. The Bells used a Florida address on their income tax return. When the IRS agent attempted to reach Mr. Bell in Florida, she discovered that the address used on the return was a mailbox address. Additionally, Mr. Bell owns residential property in Florida. When the IRS agent visited the property, the person who answered the door did not know anyone by the name of Ron H. Bell. Despite his presence in Atlanta, Mr. Bell insisted that the investigation be located in Florida. We conclude that by means of such actions Mr. Bell attempted to mislead the IRS.
5. Filing False Documents
As previously mentioned, on March 13, 1998, Foxworthy filed a Form 7004 for taxable year 1997. The Form 7004 contains Mr. Graham's signature on the signature line; however, Mr. Graham did not sign it.
In sum, we conclude that, on the basis of the extensive record, respondent has proved by clear and convincing evidence that Mr. Bell fraudulently underpaid his Federal income taxes for the years in issue. As to Foxworthy, respondent concedes the determinations made with respect to Foxworthy in the event that we decide that Foxworthy was Mr. Bell's alter ego. As we have decided above that Foxworthy was Mr. Bell's alter ego, we need not consider the determinations made in the notice of deficiency sent to Foxworthy. On the basis of respondent's concession, we hold that Foxworthy is not liable for those determinations.
As to the fraud penalty determined against Mrs. Bell, we conclude that respondent has failed to clearly and convincingly establish any fraudulent intent by Mrs. Bell. See Katz v. Commissioner [ Dec. 44,832], 90 T.C. 1130, 1144 (1988) (a finding of fraud based upon circumstance that creates only suspicion will not be sustained). Consequently, we hold that Mrs. Bell is not liable for the fraud penalty. 21
II. Period of Limitations
The Bells argue that respondent cannot assess the tax deficiencies respondent determined against them for taxable years 1996 through 1998 because the statutory periods of limitations have expired.
In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed at any time. See sec. 6501(c)(1). A fraudulent return deprives the taxpayer, and the taxpayers' spouse in the case of a joint return, of the protection of the bar of the statutory period of limitations for that year. See Badaracco v. Commissioner [ 84-1 USTC ¶9150], 464 U.S. 386, 396 (1984); Lowy v. Commissioner, 288 F.2d at 520; Vannaman v. Commissioner, 54 T.C. at 1018; see also Colestock v. Commissioner, 102 T.C. at 385.
We have decided above that Mr. Bell filed fraudulent income tax returns for all of the taxable years in issue. Consequently, the period of limitations on assessment for each taxable year in issue remains open as to the Bells.
III. The Deficiencies Determined Against the Bells
Deductions are a matter of legislative grace, and taxpayers generally bear the burden of showing that they are entitled to any deductions claimed on their returns. Rule 142(a); New Colonial Ice Co. v. Helvering [ 4 USTC ¶1292], 292 U.S. 435, 440 (1934).
A taxpayer is required to maintain records that are sufficient to enable the Commissioner to determine the correct tax liability. See sec. 6001; sec. 1.6001-1(a), Income Tax Regs. In addition, the taxpayer bears the burden of substantiating the amount and purpose of the item for the claimed deduction. See Hradesky v. Commissioner [ Dec. 33,461], 65 T.C. 87, 90 (1975), affd. per curiam [ 76-2 USTC ¶9703], 540 F.2d 821 (5th Cir. 1976).
A. Burden of Proof
The Bells argue that respondent bears the burden of proof under section 7491(a)(1) with respect to the deficiencies in issue. In pertinent part, Rule 142(a)(1) provides, as a general rule: “The burden of proof shall be upon the petitioner”. In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner. See sec. 7491(a)(1); Rule 142(a)(2). Credible evidence is evidence that, after critical analysis, a court would find constituted a sufficient basis for a decision on the issue in favor of the taxpayer if no contrary evidence were submitted. Baker v. Commissioner [ Dec. 55,548], 122 T.C. 143, 168 (2004); Bernardo v. Commissioner [ Dec. 55,736(M)], T.C. Memo. 2004-199, n.6.
The Bells' contention that respondent has the burden of proof lacks merit because, for the reasons discussed throughout the instant opinion, aside from certain of the claimed charitable contribution deductions discussed below, 22 the Bells have not introduced credible evidence with respect to the deficiencies in issue. Consequently, the burden of proof remains on the Bells, a burden that, because of the absence of credible evidence, they cannot sustain. See Bernardo v. Commissioner, supra n.7; see also Rendall v. Commissioner [ 2008-2 USTC ¶50,480], 535 F.3d 1221, 1225 (10th Cir. 2008) (citing Bernardo v. Commissioner, supra), affg. T.C. Memo. 2006-174.
Additionally, section 7491(a) requires that the taxpayer cooperate with reasonable requests by the Commissioner for “witnesses, information, documents, meetings, and interviews”. Sec. 7491(a)(2)(B). Aside from the disallowed charitable contribution deductions, the Bells failed to comply with the substantiation and record-keeping requirements necessary to shift the burden of proof to respondent. Consequently, for the foregoing additional reasons, we hold that the Bells bear the burden of proof as to the deficiencies in issue.
B. OEL Transactions, Foxworthy Deductions, and BCM Deductions
As discussed above with respect to respondent's fraud determinations, respondent determined a series of adjustments to the Bells' income taxes. Most of the Bells' contentions regarding respondent's deficiency determinations are addressed above in our discussion of the fraud penalties and do not bear repeating here, except that we conclude on the record that the Bells have failed, except for the charitable contribution deductions discussed below, to prove that respondent's deficiency determinations are incorrect. Accordingly, we uphold respondent's determinations with respect to the unreported income from the OEL transactions, Foxworthy's overstated deductions with respect to Northside, the Bells' unreported income with respect to Foxworthy's gross income, and the disallowed BCM flowthrough deductions.
We found above that Foxworthy is Mr. Bell's alter ego. Most of Foxworthy's deductions, except the real estate ad valorem taxes paid with respect to Northside, are otherwise personal to the Bells and therefore are not deductible by the Bells. As to those real estate ad valorem taxes, we hold that they are properly allowable deductions by the Bells pursuant to section 164(a)(1). As to the interest deductions Foxworthy claimed for payments on the alleged loans by Helston and Ballyclare, however, those deductions are not proper because we conclude, on the basis of the record, that the loans are a sham. The remaining disputed deductions are addressed below.
C. BCM's Bad Debt Deductions Flowing Through to the Bells
Respondent determined that the Bells are not entitled to their claimed deductions with respect to two alleged Steinberg loans. The Bells claimed a capital loss of $103,286 for taxable year 2000. The loss consists of $91,350 of unsecured notes and $11,936 in legal fees associated with collecting the alleged debts. Respondent contends that the Bells have failed to establish that the debts existed, that the R&P Partnership had bases in the alleged debts, that the alleged debts are of the type that qualifies for a deduction, that the alleged debts were paid, or that the alleged debts, if they were in fact debts, went bad during a year in issue.
Section 166(d)(1)(B) provides that, where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year. Whether a debt is worthless is a factual question on which the taxpayer bears the burden of proof. Estate of Mann v. United States [ 84-1 USTC ¶9454], 731 F.2d 267, 275 (5th Cir. 1984).
The Bells have failed to meet their burden of proof because they have not demonstrated that the alleged Steinberg loans were valid debts and that those alleged debts became worthless. The promissory notes that the Bells submitted as evidence are not dated and are signed only by the alleged debtor Steinberg, with no witness or any notary seal. Furthermore, the Bells allege that in addition to R&P Partnership there were eight creditors of Steinberg. However, there is no evidence to verify this allegation. We conclude that Mr. Bell's testimony lacks credibility and is insufficient to establish the debt and its worthlessness without further corroboration. The Court need not accept at face value a witness's testimony that is self-interested or otherwise questionable. See Archer v. Commissioner [ 55-2 USTC ¶9783], 227 F.2d 270, 273 (5th Cir. 1955), affg. a Memorandum Opinion of this Court dated Feb. 18, 1954; Weiss v. Commissioner [ 55-1 USTC ¶9365], 221 F.2d 152, 156 (8th Cir. 1955), affg. [ Dec. 20,363(M)], T.C. Memo. 1954-51; Schroeder v. Commissioner [ Dec. 43,384(M)], T.C. Memo. 1986-467. We conclude that the Bells have failed to carry their burden to prove the bad debts were bona fide debts and became worthless during a year in issue. We therefore uphold respondent's determinations disallowing the $103,286 in capital losses with respect to the alleged loans.
D. Investment Account Income
The Schwab accounts of Helston, Ballyclare and Rossendale/RHB Corp. earned investment income which the Bells failed to report. The money in those accounts came from the OEL transactions, which we have held to be income to Mr. Bell. Mr. Bell formed the three corporations in Nevis and set up Schwab accounts in Georgia, in the branch closest to BCM's office. All three entities lacked a legitimate business interest. Rossendale/RHB Corp. was the primary recipient of the funds from the OEL transactions. The funds were then used to finance the tax deed business. Helston and Ballyclare were used to lend money for Foxworthy to purchase Northside. Mr. Bell formed the three foreign entities because they were not subject to taxation in the United States, and Mr. Bell used them as a mechanism to repatriate the OEL funds. Section 61 provides that gross income means all income from whatever source derived, including interest and dividends. All of the income in the three accounts, aside from the principal amounts deposited, consists of interest or dividends. Additionally, we note that Mr. Bell stressed to Mr. Reiserer that the speed at which the offshore money was repatriated was unacceptable because he was losing interest. Accordingly, we hold that the Bells have failed to prove that they are not liable for $8,445.10 in interest income from Helston's Schwab account in 1997, $7,469.19 in interest income from Ballyclare's Schwab account in 1997, and $37,031, $168,287.61, $126,963.85, $96,235.40, and $141,916.42 in 1997 through 2001, respectively, from Rossendale/RHB Corp.'s Schwab account. As found above, for 1999, $18,166.50 of the income in the Rossendale/RHB Corp. account was dividend income.
E. Capital Gains on Liquidation of Stock
Respondent argues that the Bells must recognize $329,363.38 as gain on the sale of stock because the shares in the R&P Partnership were owned by Mr. Bell. Mr. Bell authorized the shares in the R&P Partnership to be transferred to the Schwab account in Mr. Reiserer's name. Once in the Reiserer account, the shares were liquidated for $2,225,181.96, with Mr. Bell authorizing the proceeds to be transferred to Rossendale's Schwab account. The Bells argue that the liquidated shares from the Reiserer account were not Mr. Bell's and that he was merely a trustee of his father's and mother's trust accounts. The Bells further argue that respondent has not provided an explanation for the calculation of the gain. Mr. Bell testified that R&P Partnership was another name for himself and his wife. The shares that came from the R&P Partnership and were transferred, first to the Reiserer account and later as liquidation proceeds to the Rossendale account, were owned by the Bells. The shares in the Hoyt Bell account, Roberta Bell account, and Kelli Bell account were eventually transferred to Helston and Ballyclare and used to purchase Northside. The shares in those accounts were not transferred to Rossendale as part of an alleged private annuity transaction. We conclude that the Bells have failed to establish that such a private annuity transaction in fact existed.
As to the Bells' argument regarding respondent's failure to explain the calculation of the gain, it is the Bells who bear the burden of proving that respondent's deficiency determinations are incorrect. On the issue of the capital gains on the liquidation of stock, the Bells have not met their burden of proof. Consequently, we conclude that the Bells are liable for the capital gain on the liquidation of stock of $329,363.38 because the shares were owned by Mr. Bell and sold for a gain.
F. SEC Fine
The Bells concede that the $15,000 fine against BCM was not properly deducted in 1999 as an employee business expense. The Bells argue that the remaining $30,000 was proper because, although the fines were the personal obligation of Mr. Bell, Mr. Comsudes, and Mr. Palmer, respectively, BCM was the beneficiary of the work done by the three individuals. Pursuant to section 162(f), no deduction shall be allowed for any fine or similar penalty paid to a government for the violation of any law. BCM paid the $30,000 to satisfy the SEC fines levied for violation of the Investment Advisers Act of 1940, a Federal law, arguing that it was the beneficiary of the work done by Mr. Bell, Mr. Comsudes, and Mr. Palmer. The SEC order states that Mr. Bell, Mr. Comsudes, and Mr. Palmer aided and abetted BCM in committing violations. Therefore, we hold that BCM was not entitled to deduct $30,000 paid in fines to the SEC on behalf of Mr. Bell, Mr. Comsudes, and Mr. Palmer. 23
G. Charitable Contribution Deductions
The Bells claimed on their returns charitable contribution deductions of $161,604, $192,377, $87,572, $139,653, and $69,386, respectively for taxable years 1996, 1997, 1998, 1999, and 2000. Respondent disallowed the charitable contribution deductions in the following amounts: $155,001 for 1996, $171,103 for 1997, $77,253 for 1998, $139,653 for 1999, and $62,915 for 2000. The contributions in 1996 and 1997 included the contribution to the foundation of shares of Northeast Investments Trust valued at $300,240 for 1996 and $202,320 for 1997. Respondent disallowed the charitable contribution deductions because Mr. Bell controls the foundation and has not demonstrated the transfer of shares took place.
Section 170(a)(1) provides that a taxpayer may deduct “any charitable contribution * * * payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.”
Petitioners have provided statements from R&P Partnership's Schwab account that substantiate the transfer of the shares of Northeast Investments Trust to the foundation. The statements show the shares leaving the R&P Partnership account and the foundation's statements show the shares in the account, along with the value of the shares. IRS Revenue Agent Wilcoxon testified that despite receiving substantiation from the Bells regarding the contributions to the foundation, she disallowed the deductions because Mr. Bell controlled the charity. However, respondent has not cited any authority in support of his contention that merely having control over the foundation disqualifies the Bells from claiming the charitable contribution deductions for the contribution of the shares of Northeast Investors Trust to the foundation. Although the foundation is a private foundation controlled by the Bells, control alone is not sufficient to defeat the deduction to the Bells. 24 Control in the context of private foundations generally is an issue in determining whether a private foundation is liable for excise taxes because of self-dealing. See sec. 4941. Respondent, however, does not contend that there was any self-dealing on the part of the foundation or any other violation of the restrictions or requirements of private foundations, and the record shows none. See secs. 4940-4945. Furthermore, respondent does not challenge the tax-exempt status of the foundation.
For the years 1999 and 2000, the Bells claimed total charitable contribution deductions of $650,592. However, at trial the Bells substantiated charitable contributions of only $567,886, leaving $82,706 of unsubstantiated contributions. Consequently, we hold that the Bells are entitled to a total charitable contribution deduction of $567,886.
H. BCM Deductions
Mr. Bell, as the sole owner of BCM, reported its income on his Schedule E for each of the years in issue. BCM claimed deductions on its income tax returns for various expenses. Respondent determined that BCM overstated its deductions by $1,228,088, $1,702,817, $2,678,033, $3,195,463, $1,966,457, and $651,470 for 1996, 1997, 1998, 1999, 2000, and 2001, respectively. BCM claimed deductions of $800,000, $1,220,000, $2,225,000, $2,430,000, $1,880,000, and $425,000 for the services of Mr. Bell in 1996, 1997, 1998, 1999, 2000, and 2001, respectively. The foregoing deductions are proper deductions by BCM as wages paid to Mr. Bell pursuant to section 162(a)(1). As we have previously determined above, however, that salary is taxable to Mr. Bell. Aside from the wages paid to Mr. Bell, the Bells have failed to substantiate that the deductions BCM claimed are legitimate deductions. Excepting Mr. Bell's self-serving testimony, which we do not find credible on the basis of the record, the Bells have not called witnesses or submitted documents that corroborate the claimed deductions. See Archer v. Commissioner, 227 F.2d at 273; Weiss v. Commissioner, 221 F.2d at 156; Schroeder v. Commissioner [ Dec. 43,384(M)], T.C. Memo. 1986-467. Accordingly, we hold that, except for the wages paid to Mr. Bell, BCM is not entitled to the disputed deductions disallowed in the notices of deficiency. Consequently, we sustain respondent's determinations increasing the Bells' income by those amounts.
IV. Negligence Penalty
As to the Bells, respondent concedes the accuracy-related penalty pursuant to section 6662 in the event the Court upholds the fraud penalty against Mr. Bell. As we have held above, Mr. Bell is liable for the section 6663 penalty; consequently, on the basis of respondent's concession, we hold that neither of the Bells is liable for the section 6662 penalty. Mrs. Bell is not liable for the accuracy-related penalty imposed by section 6662(a) because the underpayments are due to fraud by Mr. Bell. See sec. 6662(b); Zaban v. Commissioner [ Dec. 52,316(M)], T.C. Memo. 1997-479; Aflalo v. Commissioner [ Dec. 50,273(M)], T.C. Memo. 1994-596; Minter v. Commissioner [ Dec. 47,614(M)], T.C. Memo. 1991-448.
V. Section 6651(a)(1) Addition to Tax
Respondent determined that the Bells are liable for an addition to tax under section 6651(a)(1) for 1996. Section 6651(a)(1) imposes an addition to tax for failure to file a return by the date prescribed (determined with regard to any extension of time for filing) unless the taxpayer can establish that such failure is due to reasonable cause and not due to willful neglect. Once the Commissioner carries his burden of production, the taxpayer has the burden of proving that the addition to tax is improper. Rule 142(a); United States v. Boyle [ 85-1 USTC ¶13,602], 469 U.S. 241, 245 (1985). Section 7491(c) provides that the Commissioner will bear the burden of production with respect to the liability of any individual for additions to tax and penalties. “The Commissioner's burden of production under section 7491(c) is to produce evidence that it is appropriate to impose the relevant penalty, addition to tax, or additional amount”. Swain v. Commissioner [ Dec. 54,732], 118 T.C. 358, 363 (2002); see also Higbee v. Commissioner [ Dec. 54,356], 116 T.C. 438, 446 (2001). Respondent has met his burden of production.
Respondent received the Bells' joint income tax return for 1996 on August 27, 1997. Petitioners have not shown that they requested an extension. Furthermore, the Bells' return preparer indicated that her records did not reflect that any request by the Bells for an extension had been approved. The Bells have shown no reasonable cause as to the late filing. Consequently, we conclude that the Bells are liable for the section 6651(a)(1) addition to tax for 1996.
VI. Petitioners' Motions To Supplement the Record
Petitioners filed motions in each docket to supplement the record seeking leave to submit as evidence a letter dated July 22, 2008, from the IRS on the status of the investigation of Mr. Reiserer. Reopening the record for the submission of additional evidence lies within the discretion of the Court. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331 (1971). We will not grant a motion to reopen the record unless, among other requirements, the evidence relied on is not merely cumulative or impeaching, the evidence is material to the issues involved, and the evidence probably would change some aspect of the outcome of the case. Butler v. Commissioner [ Dec. 53,869], 114 T.C. 276, 287 (2000). Petitioners argue that it is in the interest of justice to grant their motions. However, petitioners do not articulate why it is in the interest of justice or how the evidence would change any aspect of the outcome of the instant case. We hold that reopening the record is not warranted. Therefore, petitioners' motions will be denied.
In reaching all of our holdings herein, we have considered all of the arguments made by the parties, and, to the extent not mentioned above, we conclude they are without merit, irrelevant or unnecessary to reach.
To reflect the foregoing,
An appropriate order will be issued.
Decisions will be entered for petitioner in docket Nos. 20725-03, 18969-04, and 14612-05.
Decisions will be entered under Rule 155 in docket Nos. 160-04, 601-05, 21699-05, and 24533-06.

Footnotes


1
Cases of the following petitioners have been consolidated herewith for trial, briefing and opinion: Foxworthy, Inc., docket Nos. 18969-04 and 14612-05, Ron H. Bell and Tricia S. Bell, docket Nos. 160-04, 601-05, 21699-05, and 24533-06. All are hereinafter collectively referred to as the instant case.
2
Tricia S. Bell is also referred to herein as Patricia D. Small (her maiden name).
3
Unless otherwise indicated, all section references are to the Internal Revenue Code (Code), and all Rule references are to the Tax Court Rules of Practice and Procedure.
4
These amounts represented payments as part of the OEL transactions described below.
5
Kelli Bell is the daughter of petitioners Ron H. Bell and Tricia S. Bell.
6
Respondent determined that the deduction for the new telephone system should have been capitalized, not deducted.
7
In addition to the carryover amounts claimed in 1998, 1999, and 2000, the Bells claimed charitable contributions of $10,319 in 1998, $19,719 in 1999, and $6,471 in 2000.
8
Mr. Bell was not able to produce a copy of a personnel services contract between BCM and ILS.
9
The “Foreign Deferred Compensation Program” document was written by Mr. Reiserer to Mr. Bell. The document explains the foreign deferred compensation planning program, and contains Mr. Reiserer's legal analysis of the program and how the program of OEL transactions would work for Mr. Bell.
10
Davis, Weaver & Mendel was an investment management firm based in Atlanta.
11
Thomas Weaver, a friend of Mr. Bell, was the majority owner and president of Davis, Weaver & Mendel.
12
RHB Corp. is a Nevis-based corporation Mr. Bell incorporated. RHB Corp.'s original name was Rossendale Investments. Nevis is an island in the Caribbean Sea.
13
Judy Lovell was one of Mr. Bell's contacts at the Elfin Trust, which was chosen by Mr. Bell to administer Ballyclare Holding, Inc., a Nevis corporation used by Mr. Bell as part of the OEL transactions.
14
Mr. Zarrett is Mr. Bell's personal friend. The two met in 1968 at Emory University. Mr. Zarrett was the trustee of the Mycroft Trust, set up for Kelli Bell. Mr. Zarrett also had limited power of attorney over Ballyclare and Helston. At the time of trial, Mr. Zarrett was a retired banker.
15
Sometime before this transfer, NESL changed its name to ISL.
16
In 1999 Pixley Services (Pixley) took the place of Montrain as Mr. Bell's alleged offshore employer. In 2001 Fitzwilliam took the place of Pixley as Mr. Bell's alleged offshore employer.
17
Mr. Reiserer died during July 2004.
18
Mr. Reiserer expected that the Reiserer Schwab account would have income from the liquidation of stock. Mr. Reiserer contacted Mr. Bell about two ways to report the income. Mr. Bell instructed Mr. Reiserer that he preferred Mr. Reiserer to report the income and to pay the tax from the residual amount in the Reiserer Schwab account.
19
We decide below that, as Mr. Bell's alter ego, Foxworthy is not liable for any amounts determined by respondent in the notices of deficiency in issue.
20
The Bells are not entitled to deductions for their living expenses including the costs of maintaining Northside, their personal residence, except for real estate taxes, allowable pursuant to sec. 164(a)(1). We discuss such income and deductions below. See infra p. 57.
21
We note that Mrs. Bell has not raised any defenses pursuant to sec. 6015(b), (c), or (f).

22
As to the disallowed charitable contribution deductions, we decide below, on the evidence in the record, that the Bells are entitled to some of the claimed deductions. Therefore, as to those deductions that we sustain on the basis of the record, we need not determine where the burden of proof lies.
23
Mr. Bell does not argue that the payments of the fines imposed on him, on Mr. Comsudes, and on Mr. Palmer were deductible to BCM as wages. Accordingly, we need not reach that issue.
24
The foundation files Forms 990-PF, Return of Private Foundation, and the Bells do not dispute the foundation's status as a private foundation.