Shryrock v. Commissioner, T.C. Memo. 2026-44, May 28, 2026

In the recent decision of Shryrock v. Commissioner, T.C. Memo. 2026-44, the United States Tax Court addressed a significant case involving unreported income, fraudulent failure to file under Internal Revenue Code (IRC) § 6651(f), and the improper attempt by an individual taxpayer to deduct corporate business expenses on his personal tax return. The case serves as a stark reminder of the consequences of failing to substantiate deductions and the weight that "badges of fraud" can carry when established through deemed admissions.

Factual Background of the Dispute

The litigation arose from federal income tax deficiencies determined for the 2011, 2012, and 2013 taxable years. The petitioner, Adam Shryock, operated Boobies Rock! Inc. (BR), a for-profit entity that engaged in nationwide fundraising events. While the events were presented as supporting breast cancer research, the petitioner utilized the business to collect monetary donations which were then deposited into accounts controlled by him, including an account named "Seven Group LLC."

The Commissioner determined that the petitioner received substantial unreported income through various streams, including gross receipts from Square, Inc., and "constructive dividends" from BR. Specifically, for 2011, 2012, and 2013, the IRS identified significant amounts of gross receipts, constructive dividends, and rent payments that were not reported on the petitioner's Form 1040.

Beyond the tax deficiency itself, the petitioner’s history was characterized by a pattern of noncompliance and legal scrutiny. The record established that the petitioner had been enjoined in multiple states from engaging in deceptive trade practices and had previously pleaded guilty in federal court to one count of willfully failing to file his 2011 return.

Petitioner’s Request for Relief and Claims of Error

In his Petition, the petitioner did not contest the receipt of unreported income or the failure to timely file returns or pay tax. Instead, his primary defense rested on the assertion that the Commissioner erred by failing to allow certain business deductions. Specifically, the petitioner claimed that BR had incurred significant costs related to the cost of goods sold (COGS), labor, marketing, and shipping, and further asserted that BR had made over $150,000 in charitable contributions.

Despite these assertions regarding deductions, the petitioner essentially conceded the underlying tax liability by failing to dispute the taxable nature of the receipts or the accuracy of the reported gross income.

Judicial Analysis of the Law and Application to the Facts

The Court’s analysis focused on three distinct areas: the effect of the petitioner's failure to challenge specific items, the legality of claiming corporate deductions on an individual return, and the establishment of fraudulent intent.

Concession of Unreported Income

Because the petitioner failed to assign specific errors to the Commissioner’s determination regarding the calculation of unreported income, the Court applied the principles of Rule 34(b)(1)(G). The Court noted that "[t]he petitioner is deemed to have conceded the unreported income." By failing to contest the bank deposits analysis and the nature of the receipts, the petitioner effectively removed the issue from dispute.

Improper Deduction of Corporate Expenses

A pivotal aspect of this case for tax professionals is the Court's treatment of the attempted deductions. The petitioner sought to deduct expenses that were clearly incurred by his corporation, BR, on his individual return. The Court rejected this approach, stating: "Petitioner cannot meet his burden of proving his entitlement to any deduction asserted in the Petition because the expenses there appear to be expenses incurred by BR, a corporation, in furtherance of its own business."

The Court further reinforced this by citing Alioto v. Commissioner, T.C. Memo. 2025-125, to clarify that a taxpayer cannot deduct the business expenses of a wholly owned corporation on an individual tax return. Even if the expenses had been properly attributable to the petitioner, the Court found a fatal lack of substantiation, noting that "[h]e failed to provide records or receipts to substantiate the amounts and nature of the expenses, as required by the Code."

Establishment of Fraudulent Intent Under Section 6651(f)

Regarding the additions to tax under § 6651(f), the Commissioner bore the burden of proving fraud by clear and convincing evidence. To do so, the Court examined various "badges of fraud," including the understatement of income, inadequate records, and engaging in illegal activity.

The Court held that the respondent successfully established fraud through deemed admissions. The Court concluded that the petitioner’s actions met the statutory threshold for fraudulent failure to file, stating that "[h]e 'received taxable income . . . but failed to file any tax return . . . due to fraud.'" The decision highlighted several persuasive factors, including the petitioner's "failure to make estimated tax payments despite receiving substantial income" and his prior federal conviction for willful failure to file.

Conclusion of the Court

The Court ultimately granted the Commissioner’s Motion for Summary Judgment. Because there were no genuine disputes of material fact regarding the unreported income or the validity of the additions to tax, the Court sustained the deficiencies and additions to tax for all years at issue. This case underscores the necessity for practitioners to ensure that corporate expenses are properly allocated to the correct entity and that all deductions are supported by robust contemporaneous documentation to avoid the devastating implications of a fraud determination.

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