                        T.C. Memo. 2015-21



                  UNITED STATES TAX COURT



       SUSAN NA A.K.A. SUNG HWA NA, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 25569-12.                         Filed February 11, 2015.



       R determined a deficiency in income tax for P’s 2008 taxable
year arising from P’s alleged failure to report additional income from
her business. R also determined an I.R.C. sec. 6662(a) accuracy-
related penalty. R computed P’s alleged unreported income on the
basis of a bank deposits analysis. P contends that she held funds in
the analyzed bank accounts as an agent or trustee for her supervisor
and that she acted as a mere conduit for payments to and by her
supervisor. P contends that deposits of these funds do not represent
income to her.

      Held: P established by a preponderance of the evidence that
she received some of the deposits allegedly constituting unreported
income as an agent, trustee, and/or mere conduit, but she failed to
prove this theory for other deposits and must include these latter
deposits in income.
                                           -2-

[*2]          Held, further, because R determined that P derived the deposits
       she must include in income from her conduct of a trade or business
       and because P failed to produce evidence to the contrary, this income
       is subject to self-employment tax under I.R.C. sec. 1401(a) and (b).

             Held, further, P is liable for the I.R.C. sec. 6662(a) and (b)(1)
       negligence penalty.


       Howard S. Fisher, for petitioner.

       Sameera Hasan and Michael K. Park, for respondent.




             MEMORANDUM FINDINGS OF FACT AND OPINION


       WHERRY, Judge: Respondent determined a Federal tax deficiency of

$367,297 for petitioner’s taxable year 2008 after concluding that petitioner had

underreported her income. Because respondent identified petitioner’s business as

the source of the unreported income, the determined deficiency consisted of both

income and self-employment taxes. Respondent also determined a section

6662(a)1 accuracy-related penalty of $73,459.40. The issues presented for

decision are:


       1
      All section references are to the Internal Revenue Code of 1986, as
amended and in effect for the year at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure, unless otherwise indicated.
                                        -3-

[*3] (1) whether petitioner failed to report $1,013,769.61 of income for 2008;

      (2) whether petitioner’s 2008 unreported income, if any, is subject to self-

employment tax under section 1401(a); and

      (3) whether petitioner is liable for a section 6662(a) accuracy-related

penalty with respect to any underpayment of income tax for her 2008 tax year.

                              FINDINGS OF FACT2

      Some of the facts have been stipulated and are so found. When petitioner,

Susan Na, filed her 2008 return and when she filed her petition, she lived in Los

Angeles, California. Ms. Na speaks Korean and has very limited English-

language skills.3



      2
       In their briefs, the parties propose some findings of fact on the basis of
statements made during the trial by respondent’s counsel, by the Court, and by Ms.
Na outside of her testimony. As counsel should be well aware, the Court may rely
solely on the evidentiary record in making its findings of fact. We disregard
statements not formally in evidence. See generally Rule 143.
      3
        Although counsel for Ms. Na entered an appearance after the trial and
represented her on brief, she appeared at trial pro se, accompanied by an
interpreter, Don Row. Respondent’s counsel represented that Mr. Row holds a
law degree and so sought to use a different interpreter, Jean Rhee, an Internal
Revenue Service (IRS) revenue agent who is also fluent in Korean. The Court
permitted each party to use its own interpreter, with each interpreter offering a
check on the accuracy of the other’s translation. In only two instances did either
translator allege a mistranslation by the other. One alleged mistranslation relates
to a disputed fact and is addressed below. See infra note 13. The other was
acknowledged and corrected.
                                         -4-

[*4] During 2008 Ms. Na worked at Artnouveau City USA, Inc. (Artnouveau).

Doo Young Choi owned and operated Artnouveau and another company,

Artmonde, LLC (Artmonde). Artnouveau paid Ms. Na a specified amount

monthly. She performed services on the company’s premises, and Mr. Choi

established her working hours. For tax purposes Artnouveau reported

compensation paid to Ms. Na on Form 1099-MISC, Miscellaneous Income, which

Mr. Choi delivered to her.

I.       Tax Return

         Ms. Na timely filed her 2008 Form 1040, U.S. Individual Income Tax

Return. Patrick Chyun prepared that return. Mr. Chyun, who holds bachelor of

science degrees in both economics and accounting, has practiced as a certified

public accountant (C.P.A.) since 1992. At the time of trial in December 2013, he

had been preparing Ms. Na’s annual Federal income tax returns for more than 10

years.

         Ms. Na’s 2008 Federal income tax return reported her occupation as “real

estate sales”. The appended Schedule C, Profit or Loss from Business, identified

her “[p]rincipal business or profession” as “[o]ffices of real estate agents &

brokers”. The return reported income from the following sources, in the following

amounts: (1) taxable interest income of $3,138, (2) gambling winnings of
                                      -5-

[*5] $1,421,385, and (3) net business income of $65,236. In 10 or more years of

preparing Ms. Na’s annual tax returns Mr. Chyun never reported her receipt of any

gambling winnings other than in 2008. In Mr. Chyun’s experience Ms. Na never

reported more than $100,000 of annual gross income other than in 2008.

      A.    Interest Income

      As reported on Schedule B, Interest and Ordinary Dividends, Ms. Na

received taxable interest income from Hanmi Bank. During 2008 she held two

accounts at Hanmi Bank (Hanmi Bank accounts), a checking account (account

0349) and a money market account (account 5289). The account agreements

under which Ms. Na opened these accounts provided that she was their sole owner

and that she alone had signature authority on them. Ms. Na had no other bank

accounts in 2008.

      B.    Gambling Winnings

      Along with other documents necessary to prepare her 2008 tax return, Ms.

Na presented Mr. Chyun with a series of Forms W-2G, Certain Gambling

Winnings, from various Las Vegas and California casinos. Casinos issue these

forms when a person wins more than $1,200 at one time. Mr. Chyun reported Ms.

Na’s 2008 gambling winnings as other income on line 21 of Form 1040. On
                                      -6-

[*6] Schedule A, Itemized Deductions, Mr. Chyun deducted gambling losses equal

to the reported winnings.4

      C.    Business Income

      As part of Ms. Na’s 2008 return, Mr. Chyun prepared Schedule C. Because

Ms. Na had received a Form 1099-MISC from Artnouveau, Mr. Chyun reported on

Schedule C Ms. Na’s gross receipts of $95,200, deducted her claimed expenses,

and computed Ms. Na’s net business income as $65,236. Mr. Chyun transferred

that figure to page 1 of Ms. Na’s Form 1040.

II.   Return Examination

      In May 2010, IRS revenue agent M. Bolden (RA Bolden) began examining

Ms. Na’s 2008 tax return. As part of her examination, RA Bolden prepared

summaries and analyses of 2008 deposits into account 0349 and account 5289.

      A.    Deposits

      RA Bolden computed total 2008 deposits into account 0349 and account

5289 as, respectively, $887,132 and $1,279,953. RA Bolden’s bank deposits




      4
       Respondent did not disallow Ms. Na’s claimed loss deduction in the notice
of deficiency. The additional gross income determined in the notice apparently
has nothing whatsoever to do with Ms. Na’s reported gambling income and losses.
                                       -7-

[*7] analysis reflects that Ms. Na received these deposits from the following

sources, in the following amounts:5

                       Source1                Account 0349          Account 5289
      Account 0349                                    ---                $64,000.00
      Account 5289                             $370,000.00                    ---
                                                  2
      Angie H. In                                     1,900.00            14,070.00
      Artnouveau3                               284,224.99               292,947.27
      Cash4                                       43,800.00               61,450.00
      Chase Auto Finance                              ---                           47.98
      Chul and Shelly Kim                             4,500.00                ---
                                                                     5
      Doo Young Choi                              44,245.83              737,195.00
      Eric and Mihwa Mekus                            1,000.00                ---
                                                                          6
      Hanmi Bank                                      ---                     3,138.67
                                                  5
      JK Worldwide Enterprise                         7,000.00                ---
      Koram Consulting                                1,609.00                ---
      Lee Gi Cheol                                    5,976.50                ---
      Newkoa, LLC                               100,000.00                    ---
                                                       5
      Pixma, Inc.                                          500.00             ---
      Prima Escrow                                                        22,103.89



      5
        RA Bolden analyzed only deposits into Ms. Na’s accounts; if she computed
totals by payor, respondent did not introduce these computations into evidence.
The Court independently scrutinized the bank records introduced into evidence
and computed the amounts of deposits by payor and debits by payee that appear in
the following tables. We have provided in the Appendixes the spreadsheets that
underpin those computations and that support our factual findings and legal
conclusions.
                                      -8-

[*8] Saehan Bank                                    ---                85,000.00

Sunmin Kim                                          3,636.43            ---
Unknown (2007 and 2009 deposits)                   18,727.00            ---
Voyager Indemnity Insurance                               12.72         ---
  Total deposits                                  887,132.47        1,279,952.81

   1
      All deposits consisted of checks, with three exceptions. First, Lee Gi Cheol
wired $5,976.50 to Ms. Na’s checking account on July 3, 2008, and Mr. Choi
wired $179,995 to her money market account on February 29, 2008. Second, the
source “Cash” refers to cash deposits. And third, when transferring funds
between her accounts, Ms. Na sometimes used an internal Hanmi Bank
withdrawal slip or electronically transferred the money.
    2
      When Ms. Na deposited a $500 check from Ms. In on May 16, 2008, she
received $100 cash back, for a net deposit of $400. RA Bolden did not include
the $100 cash in her calculation of Ms. Na’s unreported income, so we likewise
omit that amount here.
    3
      Ms. Na deposited numerous checks from Artnouveau into her accounts. Many
of these checks were made out to cash or had blank payee lines, but others were
made out to Ms. Na. On each of Feb. 15, Mar. 27, Apr. 1, 15, and 30, May 15 and
May 30, June 16, July 1, July 21, and Aug. 1, 2008, Ms. Na deposited a $1,500
check from Artnouveau. In nearly all instances, these checks were made out to
her by name. On each of Aug. 15 and 29, Sept. 16 and 30, and Oct. 15 and 31,
she deposited a $1,400 check from Artnouveau, made out to her. On each of Nov.
14 and 28, and Dec. 15 and 31, she deposited a $1,600 check from Artnouveau
made out to her. These relatively regular payments are consistent with Ms. Na’s
testimony that she received a “salary” or “monthly basis at certain amount” from
Artnouveau.
    4
      One $3,000 cash deposit occurred in 2009, so RA Bolden classified this
deposit as nontaxable. See infra p. 11.
   5
     Ms. Na deposited a single, $500 check from Pixma, Inc., the payee line of
which was blank, into account 0349 on July 10, 2008. That check bounced on
July 11, 2008. Ms. Na deposited a single, $7,000 check from JK Worldwide
Enterprise, Inc., the payee line of which was blank, into account 0349 on Apr. 2,
2008. The check bounced five days later. On Apr. 16, 2008, Ms. Na deposited
a $9,900 check from Mr. Choi, written to cash, into account 5289. The following
day, that check also bounced. RA Bolden nevertheless included these three
deposits in calculating Ms. Na’s unreported income.
  6
   Hanmi Bank paid Ms. Na interest on her money market account on the last
day of each month.
                                          -9-

[*9] B.       Debits

      Ms. Na made payments from account 0349 and account 5289 by check,

direct debit, wire transfer, or withdrawal slip to the following recipients, in the

following aggregate amounts:

                           Payee                    Account 0349    Account 5289
      Account 0349                                       ---         $350,000.00
      Account 5289                                    $58,000.00         ---
      Angie H. In                                       1,500.00         ---
      Artmonde                                           ---          100,000.00
      Artnouveau                                      348,750.00      250,000.00
      Belle Collection                                 30,000.00         ---
      Blank (payee illegible from stub)                17,585.12         ---
      Cash (payee illegible from stub)                 19,609.83      372,000.00
      Chase                                             3,262.75        1,977.76
      Computer On-Site Services                         1,350.00         ---
      Credit card (provider unknown)                   36,699.03       78,567.84
      Deluxe Check                                         14.10         ---
      Downtown Motors                                  10,000.00         ---
      Doo Young Choi                                   79,577.00      115,000.00
      Eun Mi Kwon                                      50,000.00         ---
      Gui Gui & Gu Gu                                  21,000.00         ---
      Hampshire Place Apartments                        7,055.93         ---
      Han Som                                           6,000.00         ---
      Hanmi Bank                                       16,600.00       15,000.00
                                    - 10 -

[*10] Helio                                            178.96          ---

Hyo Sang Kim                                           ---            3,841.33
International Watches                               10,000.00          ---
Joon Ha Kim                                          1,500.00          ---
Kwang Ja Yoo                                           ---            9,518.00
L.A. Department of Water & Power                        69.62          ---
Media Master                                           306.93          ---
Mega Diamonds1                                       8,787.00          ---
Mercedes Benz                                        6,596.17          ---
Onyx Diamonds                                       13,500.00          ---
Oscar Cervantes                                        100.00          ---
Pitney Bowes                                            97.39          ---
Richard Suh                                            ---            5,000.00
Saade Diamonds                                      10,900.00          ---
Safeco Insurance                                     1,913.40          ---
South Coast Helicopters                              3,562.50          ---
Standard Parking                                       615.00          ---
T-Mobile                                               623.71          ---
Unknown2                                            72,458.10         2,184.56
Verizon Wireless                                       565.70          ---
Young Ran Lee                                         ---             3,618.00
 Total payments3                                   838,778.24     1,306,707.49

   1
    Mega Diamonds Corp. cashed a check made out to “Cash”.
   2
    Because these debits appear on Ms. Na’s monthly bank statements, but no
canceled checks in evidence match with them, we cannot determine the payees’
identities. The parties’ joint exhibits include copies of many canceled checks
from both of Ms. Na’s accounts. At trial, Ms. Na offered Exhibit 16-P, which we
admitted, and which included several additional canceled checks as well as
                                             - 11 -

[*11] duplicates of others already in evidence. Collectively, however, the exhibits omit
       many checks listed on Ms. Na’s 2008 bank statements.
         3
           These totals exclude debits for returned checks and associated fees as well as
       miscellaneous fees that appear on Ms. Na’s bank statements.

       C.       Income

       In computing Ms. Na’s income on the basis of the bank deposits analysis,

RA Bolden reduced Ms. Na’s gross receipts as follows:

                                                  Account 0349             Account 5289
     Total deposits                                   $887,132              $1,279,953
     Checks written to Artnouveau                     (348,750)               (250,000)
     Nontaxable deposits1                              (22,227)                  ---
     Inter-account transfers                          (370,000)                 (64,000)
     Interest income2                                    ---                     (3,139)
        Net deposits                                   146,155                 962,814

            1
            Ms. Na deposited a $500 check dated Jan. 16, 2008, from Angie In; the memo
       line on the check indicates that the amount represented a loan. RA Bolden
       classified this amount as nontaxable. RA Bolden also classified as nontaxable
       deposits made in tax years 2007 and 2009 that appeared along with 2008 deposits
       on bank statements for January 2008 and January 2009 and so had been initially
       included in her 2008 total.
          2
            Ms. Na properly reported this interest income on her 2008 return.

       RA Bolden debited checks Ms. Na wrote to Artnouveau because RA Bolden

(1) determined that Ms. Na worked for Artnouveau and thus had a business

relationship with the company and (2) audited Artnouveau’s return and determined

that it had included these amounts in its 2008 income. RA Bolden did not audit
                                       - 12 -

[*12] Mr. Choi’s return because she was not able to find him. RA Bolden did not

audit Artmonde.

       On the basis of the bank deposits analysis, RA Bolden calculated Ms. Na’s

2008 gross receipts as $1,108,969.61 and concluded that Ms. Na had failed to

report $1,013,769.61 of business income (unreported deposits).

III.   Deficiency Notice

       Respondent mailed Ms. Na a notice of deficiency on July 12, 2012.6 In the

notice, respondent determined a $1,013,769.61 adjustment to Ms. Na’s reported

2008 income. Because RA Bolden believed that Ms. Na worked for Artnouveau

as a real estate agent and that she earned sales commissions, respondent classified

the additional income as Schedule C gross receipts subject to self-employment tax.

Respondent calculated deficiencies in income and self-employment taxes of,

respectively, $334,969 and $32,328, for a total deficiency of $367,297.7

Respondent also determined a section 6662(a) accuracy-related penalty of



       6
       On November 10, 2011, Ms. Na signed Form 872, Consent to Extend the
Time to Assess Tax, extending the period for assessment as to her 2008 tax year to
April 30, 2013.
       7
         Respondent computed Ms. Na’s 2008 income and self-employment tax
liabilities as, respectively, $343,663 and $41,545. On her 2008 tax return, Ms. Na
computed and reported her income and self-employment tax liabilities as,
respectively, $8,694 and $9,217.
                                       - 13 -

[*13] $73,459.40 on the basis of, in the alternative, negligence or disregard of

rules and regulations, a substantial understatement of income tax, or a substantial

valuation misstatement.

      Ms. Na timely petitioned this Court on October 16, 2012, for

redetermination of the deficiency and the penalty, and we tried her case on

December 12, 2013.

                                     OPINION

      This case requires that we decide a narrow issue: The parties do not dispute

the amounts deposited into Ms. Na’s accounts or the expenditures made with

them; they disagree only as to the source and consequent character (taxable or

nontaxable) of these deposits. We must decide that issue on a spartan record,

principally by judging the credibility of the non-English-speaking petitioner’s

brief trial testimony. The stakes are relatively high: We must redetermine Ms.

Na’s liability for tax and a penalty that cumulatively exceed her typical annual

income by more than 300%. Because we have no reason to deem Ms. Na’s

testimony untruthful, because other evidence in the record corroborates that

testimony, and because respondent offered no contrary evidence, we find, for the

most part, for petitioner.
                                       - 14 -

[*14] I.     Burden of Proof

      As a general rule, the Commissioner’s determination of a taxpayer’s tax

liability is presumed correct, and the taxpayer bears the burden of proving the

determination improper. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Because of the difficulty inherent in proving a negative, a somewhat

different rule applies where the Commissioner determines that a taxpayer received

unreported income. Weimerskirch v. Commissioner, 596 F.2d 358, 361 (9th Cir.

1979), rev’g 67 T.C. 672 (1977).8 In such cases, before the Commissioner may

rely upon the presumption of correctness, he must, as a threshold matter, “offer

some substantive evidence showing that the taxpayer received income from the

charged activity.” Id. at 360.

      If the Commissioner provides a “minimal evidentiary foundation” for his

determination, the burden of proof shifts to the taxpayer. Palmer v. United States,

116 F.3d 1309, 1312-1313 n.2 (9th Cir. 1997); accord Petzoldt v. Commissioner,

92 T.C. 661, 689 (1989). At this second stage, the taxpayer must endeavor to


      8
        This Court “follow[s] a Court of Appeals decision which is squarely in
point where appeal from our decision lies to that Court of Appeals and to that
court alone.” Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d
985 (10th Cir. 1971). When she filed her petition, Ms. Na lived in California, a
State within the jurisdiction of the Court of Appeals for the Ninth Circuit, so we
will follow decisions of that court. See sec. 7482(b)(1)(A).
                                       - 15 -

[*15] rebut the presumption in favor of the Commissioner’s determination “by

establishing by a preponderance of the evidence that the deficiency determination

is arbitrary or erroneous.” Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir.

1985).

      Ms. Na contends that respondent failed to satisfy his threshold burden. She

relies on decisions of this Court and the Federal Courts of Appeals that she asserts

require not merely evidence that a taxpayer received money or property but also

evidence that the money or property (1) belonged to the taxpayer and (2) emanated

from a taxable source.

      First, Ms. Na cites Delaney v. Commissioner, 743 F.2d 670, 671-672 (9th

Cir. 1984), aff’g T.C. Memo. 1982-666, in which the court held that the

presumption of correctness applied because the taxpayers admitted their

ownership “of the asset that * * * [wa]s the basis of the deficiency.” Ms. Na also

relies on Schad v. Commissioner, 87 T.C. 609, 618-620 (1986), aff’d without

published opinion, 827 F.2d 774 (11th Cir. 1987), in which we held the

Commissioner’s threshold obligation satisfied by evidence showing that the

taxpayer “had in his possession * * * cash in the amount of $174,679 which he

* * * attempted to use in the purchase of marijuana.” Ms. Na charges that here, in
                                        - 16 -

[*16] contrast, she has not admitted, and respondent introduced no evidence to

show, that she had an ownership interest in the funds deposited into her accounts.

      Ms. Na’s authorities do not support the distinction she attempts to draw. In

Schad, we did not require the government to prove that the cash in the taxpayer’s

possession was his, or that he had attempted to buy marijuana for himself. Rather,

the taxpayer’s possession and attempted disposition of the funds sufficed to shift

the burden to the taxpayer. See id. at 619-620. Schad also illustrates that the

taxpayer need not admit an ownership interest in the asset that is the basis of the

deficiency, as occurred in Delaney, for the Commissioner to satisfy his threshold

burden.

      Here, uncontroverted evidence establishes the amounts deposited into and

expenses paid from account 0349 and account 5289. The parties have stipulated

that these accounts were opened and operated pursuant to account agreements

under which Ms. Na, and Ms. Na alone, owned the accounts and had signature

authority on them. It is undisputed that Ms. Na held title to the Hanmi Bank

accounts and disposed of funds in those accounts by writing checks to third

parties. These facts constitute a “minimal evidentiary foundation” for

respondent’s determination that Ms. Na received unreported income. See

Weimerskirch v. Commissioner, 596 F.2d at 361.
                                       - 17 -

[*17] Second, Ms. Na points to Weimerskirch v. Commissioner, 596 F.2d at 361,

in which the Court of Appeals faulted the Commissioner for failing to offer

evidence “linking Weimerskirch to the sale of narcotics, or to the sale of heroin”,

the activities from which the Commissioner contended the taxpayer had received

unreported income. See also Rapp v. Commissioner, 774 F.2d at 935 (defining the

Commissioner’s “initial burden” to require the introduction of “some evidence

linking the taxpayer with income-producing activity”). Ms. Na asserts that

respondent offered no evidence that she earned the moneys deposited into her

account, such that they would be taxable to her as income.

      Even assuming, arguendo, that respondent failed to tie the unreported

deposits to any income-producing activity, this failure would not be fatal.

“Congress specified no particular methods or evidentiary burdens on the

Commissioner when choosing a method for reconstructing a taxpayer’s income”.

Palmer, 116 F.3d at 1312. Rather, respondent may employ any reasonable

method. See Petzoldt v. Commissioner, 92 T.C. at 693; see also Palmer, 116 F.3d

at 1312 (method need only be “rationally based”).

      “The use of the bank deposits method for computing unreported income has

long been sanctioned by the courts.” Clayton v. Commissioner, 102 T.C. 632, 645

(1994); accord DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), aff’d, 959 F.2d
                                       - 18 -

[*18] 16 (2d Cir. 1992); see also Weimerskirch v. Commissioner, 596 F.2d at 362

(listing the taxpayer’s bank deposits as one means by which the Commissioner

could have attempted to substantiate the charge of unreported income). The

method “assumes that all money deposited in a taxpayer’s bank account during a

given period constitutes taxable income.” Clayton v. Commissioner, 102 T.C. at

645. The Commissioner must “take into account any nontaxable source or

deductible expense of which * * * [he] has knowledge” but need not identify “a

likely source of income”. Id. at 645-646. “Bank deposits are prima facie evidence

of income, * * * and the taxpayer has the burden of showing that the

[Commissioner’s] determination is incorrect”. Id. at 645.

      RA Bolden employed the bank deposits method to reconstruct Ms. Na’s

2008 income. RA Bolden prepared schedules listing all checks, currency, and

wire transfers deposited in account 0349 and account 5289. She eliminated all

interaccount transfers and, to the extent of her knowledge, all deposits that Ms. Na

had otherwise reported on her return, such as interest income paid by Hanmi

Bank.9 RA Bolden further reduced Ms. Na’s total deposits for certain checks paid

      9
       Ms. Na asserts that respondent failed to take into account a nontaxable
source of other deposited funds--namely, Mr. Choi--and that respondent could
have analyzed Mr. Choi’s and his companies’ bank accounts but chose not to do
so. The record reflects that RA Bolden sought to audit Mr. Choi’s return but was
                                                                      (continued...)
                                       - 19 -

[*19] to Artnouveau, apparently concluding that these deposits were nontaxable to

Ms. Na because Artnouveau included them in income. RA Bolden thus followed

the precise steps we sanctioned in Clayton in reconstructing Ms. Na’s income.

This method was reasonable, and respondent was not obliged to offer proof of a

likely source.

      Because we conclude that RA Bolden’s bank deposits analysis satisfied

respondent’s threshold evidentiary burden, respondent’s determination of

unreported income is entitled to the presumption of correctness. The burden of

proof rests with Ms. Na.




      9
        (...continued)
not able to find him. On brief, Ms. Na protests that respondent should have
interviewed Mr. Choi in Korea, where respondent knew Mr. Choi was.
       Our precedent does not require that respondent doggedly chase down every
lead to exhaustion in an effort to eliminate receipts from nontaxable sources. See
DiLeo v. Commissioner, 96 T.C. 858, 872 (1991) (where the Commissioner used
the bank deposits method to reconstruct income, noting that he was not obliged to
“follow any ‘leads’ suggesting that * * * [the taxpayers] might have some
deductible expenses”), aff’d, 959 F.2d 16 (2d Cir. 1992). We deem RA Bolden’s
efforts to find Mr. Choi rather cursory: She determined he was not in the United
States on the basis of a single news article found through an Internet search.
However, the parties advised the Court that Mr. Choi is not a U.S. resident for tax
purposes, and there is no evidence in the record that Mr. Choi filed a 2008 U.S.
Federal income tax return that RA Bolden could have audited.
                                        - 20 -

[*20] II.    Unreported Income

      The parties offer differing explanations of the source and nature of the

unreported deposits into Ms. Na’s accounts. In respondent’s version, the

unreported deposits are taxable income from personal services Ms. Na rendered in

conducting a real estate business. In Ms. Na’s version, the unreported deposits are

nontaxable because the money was never hers; she received and disbursed the

funds as an agent or trustee, or as a mere conduit, for Mr. Choi. If we accept

respondent’s version of the facts, the unreported deposits constitute income. If we

accept Ms. Na’s version, they do not.

      A.     The Law

      Section 61 defines gross income as “all income from whatever source

derived”. Exclusions from this sweeping definition must be narrowly construed,

Commissioner v. Schleier, 515 U.S. 323, 328 (1995), but “[i]t is well settled that

the mere receipt and possession of money does not by itself constitute taxable

income”, Lashells’ Estate v. Commissioner, 208 F.2d 430, 435 (6th Cir. 1953),

aff’g in part, rev’g in part on other grounds and remanding 11 T.C.M. (CCH) 274

(1952). In particular, the realization requirement circumscribes the broad scope of

section 61 to “undeniable accessions to wealth * * * over which the taxpayer[]
                                        - 21 -

[*21] ha[s] complete dominion.” Commissioner v. Glenshaw Glass Co., 348 U.S.

426, 431 (1955).

      Hence, if a taxpayer receives funds (1) subject to a “consensual recognition,

express or implied, of an obligation to repay” them, or (2) subject to “restriction[s]

as to their disposition”, the funds may not constitute income to the taxpayer. See

James v. United States, 366 U.S. 213, 219 (1961). In such cases, the taxpayer

lacks “‘actual command over the property taxed--the actual benefit for which the

tax is paid’”. See id. (quoting Corliss v. Bowers, 281 U.S. 376, 378 (1930)).

Consequently, “[w]e accept as sound law the rule that a taxpayer need not treat as

income moneys which he did not receive under a claim of right, which were not

his to keep, and which he was required to transmit to someone else as a mere

conduit.” Diamond v. Commissioner, 56 T.C. 530, 541 (1971), aff’d, 492 F.2d

286 (7th Cir. 1974).10

      10
         The Commissioner has applied this rule in various factual contexts. See,
e.g., Rev. Rul. 67-47, 1967-1 C.B. 9, 10-11 (holding that, where a principal was
obliged to repay “sums received * * * from his exclusive sales agent as a security
deposit to insure the agent’s performance under the terms of a contract,” provided
that the agent so performed, the sums were not income to the principal); Rev. Rul.
65-282, 1965-2 C.B. 21 (holding that, where attorneys’ contracts with a legal aid
society obliged them to turn over all legal fees they received, they immediately
turned payments over to the society, and they received no direct or indirect
benefits from the fees, the fees were not income to the attorneys); Rev. Rul. 59-92,
1959-1 C.B. 11, 12 (holding that, where a pathologist received grant funds subject
                                                                       (continued...)
                                        - 22 -

[*22] Our Opinion in Seven-Up Co. v. Commissioner, 14 T.C. 965 (1950),

illustrates this rule. There, bottlers that purchased the Seven-Up Co.’s syrup paid

a $17.50 per gallon premium to cover the costs of a national advertising program

administered by the company. Id. at 968-969. The Commissioner construed these

payments as income to the Seven-Up Co., but after examining the facts and

circumstances, including written and unwritten agreements among the parties, we

reached the opposite conclusion. Id. at 977-979. We found determinative “the

intention of all * * * parties concerned that these contributions * * * be used to

acquire national advertising for the 7-Up bottled beverage and for that purpose

only, and that * * * [the company] was to be a conduit for passing on the funds

contributed to the advertising agency which was to arrange for and supply the

national advertising.” Id. at 977.

      Consistent with these intentions, the Seven-Up Co. spent the premium

payments on “national advertising, did not use them for general corporate

purposes, treated the amounts on hand * * * on its books as a liability to the

bottlers, and considered itself * * * merely as a trustee, handling the bottlers’




      10
        (...continued)
to the obligation to expend them for their earmarked purposes and derived no
economic benefit from the funds, the funds were not income to the pathologist).
                                        - 23 -

[*23] money.” Id. at 978. Because the Seven-Up Co. had served as a mere

conduit for the funds, the premium payments were not income. Id. at 979.

      We addressed an important corollary to the “mere conduit” rule in Ford

Dealers Adver. Fund, Inc. v. Commissioner, 55 T.C. 761 (1971), aff’d, 456 F.2d

255 (5th Cir. 1972). There, on facts very similar to those in Seven-Up Co., we

held that the taxpayer, a corporation formed by Florida Ford dealers to unify and

standardize their advertising and other promotional efforts, held as a trustee the

funds it received from the dealers via the Ford Motor Co. and directly from the

Ford Motor Co. Id. at 762, 764, 773. We explained:

             While it is true that strictly speaking the funneling of funds to
      Advertising is not the equivalent of the flow of water through a
      conduit, the utilization of this analogy shows that an intermediary
      may be employed as a depository for funds in trust which are destined
      for an ultimate use that is specified within defined limits. The
      benefit, profit, or gain is not to accrue to the intermediary but rather
      to some other entity. The fact that no benefit, profit, or gain accrues
      to Advertising as an entity along with the fact that a trust relationship
      does exist, is the primary reason for exclusion of the funds from gross
      income. * * * [Id. at 773-774.11]

      11
         See also Florists’ Transworld Delivery Ass’n v. Commissioner, 67 T.C.
333, 345-347 (1976) (excluding from income advances received from member
florists that could be applied only for specified purposes, notwithstanding that
portions were allocated to the taxpayer’s overhead expenses); Mill v.
Commissioner, 5 T.C. 691, 694 (1945) (excluding from income Moose Lodges’
share of slot machine proceeds collected by the machines’ operator and remitted to
the State association on the individual lodges’ behalf); Shaara v. Commissioner,
                                                                       (continued...)
                                        - 24 -

[*24] In sum, our opinions teach that if a taxpayer receives and disburses funds

strictly as an intermediary for transactions between other parties and receives no

material benefit from the funds, the taxpayer need not include the funds in his or

her gross income. Whether we should apply this rule to exclude from Ms. Na’s

gross income the unreported deposits into her Hanmi Bank accounts turns on the

probative value and weight of her evidence concerning (1) her status as a mere

intermediary and (2) her lack of benefit from the funds.

      B.     The Evidence

      At trial, Mr. Chyun and Ms. Na testified for petitioner, and RA Bolden

testified for respondent. The parties entered into a stipulation of facts and

concurrently stipulated 13 joint exhibits.

      During her case in chief, Ms. Na offered, and we admitted, Exhibit 16-P,

which consists of: (1) statements for and canceled checks written on the Hanmi

Bank accounts during 2008, some but not all of which are duplicates of statements

and checks already in evidence;12 (2) a stub for the $100,000 check Ms. Na


      11
       (...continued)
T.C. Memo. 1980-247, 40 T.C.M. (CCH) 643, 646 (1980) (excluding from income
kickback funds received as an intermediary in a public corruption scheme).
      12
        Respondent’s counsel confirmed that petitioner had shown her the exhibit
before trial, and she represented that all of the checks and bank statements were
                                                                        (continued...)
                                        - 25 -

[*25] received from Newkoa, LLC, bearing a handwritten note; and (3) a schedule

prepared by Ms. Na for trial which she contends summarizes the payments she

made on behalf of Mr. Choi.

             1.     Ms. Na’s Evidence

                    a.    Ms. Na’s Testimony

      Ms. Na testified that Mr. Choi was her employer and that he prescribed her

working hours and assigned her a desk in Artnouveau’s offices. Ms. Na

repeatedly emphasized that Mr. Choi, as her employer, instructed her to make

certain deposits into her accounts and to write certain checks from her accounts.

Ms. Na indicated that her financial situation was poor and that she felt she had to

follow Mr. Choi’s instructions to keep her job.




      12
        (...continued)
duplicative. Respondent assumes, on brief, that we excluded these documents in
their entirety, but the transcript and the Court’s records reflect that we declined to
admit only two hearsay declarations originally submitted as part of the exhibit.
We have since determined that some of the canceled checks in Exhibit 16-P, such
as the $3,562.50 check dated January 29, 2008 and payable to the order of South
Coast Helicopters, were not included in the joint exhibits, so we consider these
checks along with Ms. Na’s other bank records.
                                       - 26 -

[*26] Ms. Na testified to how Mr. Choi used her accounts for deposits related to

his business activities. For example, he told Newkoa, LLC, the counterparty on a

refund option agreement, to make its $100,000 check payable to Ms. Na. Mr.

Choi told Ms. Na to deposit the Newkoa check into her account and then “give it

back”, so she made the deposit and then “refund[ed] the money” to him. On

another occasion, Mr. Choi gave Ms. Na funds to deposit and instructed her to

then write a check to Artmonde.

      Ms. Na also described how Mr. Choi directed outflows of money from her

accounts. At Mr. Choi’s direction, she paid vendors from whom he had purchased

jewelry, rings, and other “expensive items”. She also made payments on Mr.

Choi’s Mercedes Benz. Although Ms. Na does not like to gamble, on Mr. Choi’s

instructions she obtained a player’s card and gave it to him to use. In addition to

traveling with Mr. Choi on business trips with other employees, she accompanied

him when he gambled. Mr. Choi spoke no English, whereas Ms. Na can speak

limited, “casual language” in English, so she would sit beside him when he played.
                                       - 27 -

[*27] Ms. Na would withdraw funds from her accounts for Mr. Choi’s use during

his gambling outings.13

      13
        At respondent’s counsel’s request, Ms. Rhee rather than Mr. Row
translated for Ms. Na when respondent’s counsel cross-examined her. The
following colloquy ensued:

      Ms. Hasan Did you use the funds in your accounts to gamble with Mr.
                Choi?

                   *      *      *     *        *   *     *

      Ms. Rhee     She says it’s true because he deposit [sic] his money to
                   my account, her account. So I withdrew his money, which was
                   in my account, withdrew that. And we gambled. But that was
                   his money.

      Mr. Row      No. That was wrong.

      Ms. Hasan Objection --

      Mr. Row      No. No.

      Ms. Hasan -- Your Honor.

      The Court    Wait. Wait.

      Mr. Row      That was wrong translation. She never said, you know,
                   “We gambled together.” “He gambled himself.”

      [Mr. Row] She said that’s true, it’s true. I did not gamble. He -- he
                gambles, I sit by him.

We substitute Mr. Row’s name for Ms. Na’s before the last-quoted statement even
though the transcript attributes this statement to “Ms. Na” because (1) the court
                                                                       (continued...)
                                        - 28 -

[*28]               b.     Ms. Na’s Exhibit

        As part of Exhibit 16-P, Ms. Na provided a schedule summarizing amounts

she claims she paid from Mr. Choi’s funds in her accounts at Mr. Choi’s direction.

The schedule reflects total funds attributable to Mr. Choi of $1,011,502.80.

        Ms. Na testified, and her schedule reflects, that she paid “back to” Mr. Choi

$361,000 from account 5289 and $290,964 from account 0349. Pages 2 through

17 of Exhibit 16-P,14 which are fastened together into two packets, consist of the

Newkoa check,15 canceled checks deposited into or written on account 5289,

including checks written to Mr. Choi or to cash, and monthly statements for


        13
         (...continued)
reporter regularly used this convention throughout the transcript where Mr. Row
translated into English statements Ms. Na made in Korean, and (2) the Court
recalls hearing Mr. Row, not Ms. Na, make this statement. Because Ms. Rhee did
not defend her translation or contest Mr. Row’s, the Court can only assume that
she must have agreed she had erred. We therefore do not construe Ms. Na’s
testimony as an admission to having gambled alongside Mr. Choi.
        14
        As we have explained, see supra note 12, most of Exhibit 16-P duplicates
matter already in the record. Because some pages of Exhibit 16-P do not appear in
other exhibits, however, and for consistency, we refer to page numbers within
Exhibit 16-P only.
        15
       The information printed on the back of the Newkoa check reflects that the
check was deposited into account 0349 (not account 5289) on April 30, 2008. Ms.
Na’s bank records do not disclose a corresponding $100,000 check or other debit
from account 0349. Ms. Na did withdraw $100,000 from account 5289 on
October 24, 2008, but she did not identify this withdrawal on Exhibit 16-P as
having been made on Mr. Choi’s behalf.
                                       - 29 -

[*29] account 5289 bearing, inter alia, annotations to the effect that Ms. Na made

payments on Mr. Choi’s credit card. The amounts total $361,000. Pages 29

through 51 of Exhibit 16-P consist of canceled checks written on and withdrawal

slips for account 0349. Payees on the checks include Mr. Choi, Hanmi Bank,

various jewelers, and “Downtown Motors”. Other checks are written to cash. The

amounts total $290,964.

      Ms. Na further testified, and her schedule reflects, that she paid “back to”

Artmonde $280,000 from account 5289. Pages 18 through 21 of Exhibit 16-P,

which are stapled together, consist of two canceled checks written on account

5289 and monthly statements for account 5289, one of which lists the two

canceled checks. One $100,000 check is payable to Artmonde, and the other

$180,000 check is payable to “cash for wire”.

      Ms. Na testified, and her schedule reflects, that per Mr. Choi, she wired

$16,977.81 to Korea from Account 5289. Pages 22 through 28 of Exhibit 16-P,

which are stapled together, consist of: (1) two canceled checks from Prima

Escrow, Inc., totaling $22,103.89; (2) a monthly statement for account 5289

reflecting those checks’ deposit on September 5, 2008, and outgoing wires the

same day totaling $16,977.33; (3) records of wire transfers to three individuals’

bank accounts, at least one of which was held at a bank in Seoul, Korea, that
                                       - 30 -

[*30] apparently correspond to the wires listed on the bank statement; and (4) a

withdrawal slip for account 5289 dated September 5, 2008, for $6,000.

      Finally, Ms. Na testified, and her schedule reflects, that per Mr. Choi she

paid $62,560.99 of office expenses for Artnouveau from account 0349. Pages 52

through 84 of Exhibit 16-P consist of canceled checks written on account 0349

and monthly statements for account 0349 on which certain direct debit payments

from the account have been highlighted. Payees on the checks include, inter alia,

a computer services company, the Los Angeles Department of Water and Power, a

parking company, and, on a single check on which the memo line reads “Rent”,

“Hampshire Place Apt”. On many of the checks, however, the payee line is blank.

Payees on the direct debits include, inter alia, mobile telecommunications service

providers, “EQ Hampshire Pl”, and one or more credit card providers. The check

amounts and the highlighted debit amounts together total $54,753.72. The

addition of two further, unhighlighted credit card payments listed on Ms. Na’s

account statements would bring the total to $62,560.99.16

      16
         Exhibit-16P is not meticulously annotated or organized. In addition to the
unhighlighted credit card payments that evidently constituted part of Ms. Na’s
total for office expenses, some payments to Verizon Wireless and EQ Hampshire
Pl are highlighted, but others are not. Further, one of the payments Ms. Na
identified as an office expense paid on Mr. Choi’s behalf with his funds in the
amount of $181.61 occurred in 2007. That payment cannot have been made with
                                                                      (continued...)
                                      - 31 -

[*31] In sum, Exhibit 16-P aligns with and provides granular detail for Ms. Na’s

version of events. In her testimony, she claimed that many deposits into and

debits from her Hanmi Bank accounts were attributable to Mr. Choi. He either

gave her money to deposit or directed third parties to remit to Ms. Na payments

that were due to him or his companies; he then directed Ms. Na’s disposition of

those funds. Exhibit 16-P purports to identify specific payments that Ms. Na made

at Mr. Choi’s direction, lending support to her trustee/conduit theory. Testimony

by Mr. Chyun, Ms. Na’s longtime C.P.A., also lends credence to Ms. Na’s story.

                   c.    Mr. Chyun’s Testimony

      According to Mr. Chyun, during the more than 10 years in which he had

prepared Ms. Na’s Federal income tax returns, as previously noted, she had never

reported more than $100,000 of annual gross income other than in 2008. Nor, to

Mr. Chyun’s knowledge, had she ever received income from gambling winnings

other than in 2008. After Ms. Na gave him her Forms W-2G for 2008, he asked

      16
         (...continued)
funds Ms. Na received as a conduit for Mr. Choi during the 2008 tax year.
       Considering that Ms. Na prepared the exhibit in the two-day period between
the calendar call and trial, without assistance from counsel, we will not give
disproportionate weight to these minor inconsistencies in her presentation.
Conversely, however, we will not speculatively treat as having been made on
behalf of Mr. Choi deposits or payments other than those Ms. Na has specifically
identified. Hence, we will not classify the additional Verizon or EQ Hampshire Pl
payments as conduit flows that would reduce Ms. Na’s taxable income.
                                       - 32 -

[*32] her about them because the total amount of the gambling income was “a

kind of a very extraordinary number based on her prior tax return pattern.” Ms.

Na explained that the gambling winnings were “from her boss”, who had asked

Ms. Na to provide her own Social Security number to the casinos. According to

Mr. Chyun, Ms. Na told him that Mr. Choi had pressured her, and that she felt she

had no choice. The Court found Mr. Chyun’s testimony credible and consistent

with Ms. Na’s version of events.

                    d.     Ms. Na’s Bank Records

      Careful scrutiny of Ms. Na’s bank records reveals a pattern consistent with

Ms. Na’s explanation for the unreported deposits. Coupled with her testimony, the

records strongly suggest that Mr. Choi frequently funneled money through Ms.

Na’s accounts. Many deposits correlate with checks written contemporaneously

with those deposits, for identical or nearly identical amounts. A large sum of

money would flow in and then almost immediately flow back out. We offer a few

examples to illustrate this pattern:
                                        - 33 -

[*33]                              Account 0349
                              Deposit                                        Debit
Check date       Payor        amount       Check date         Payee         amount
 1/5/2008      Artnouveau     $20,000       1/5/2008    Mr. Choi           $20,000
 3/5/2008      Artnouveau      30,000       3/5/2008    Belle Collection    30,000
3/31/2008      Artnouveau      21,000      3/31/2008    Gui Gui & Gu Gu     21,000
5/20/2008      Artnouveau      10,000      5/20/2008    Int’l Watches       10,000
5/20/2008      Artnouveau      14,500      5/20/2008    Onyx Diamonds       13,500

8/11/2008      Artnouveau       6,600      8/11/2008    Hanmi Bank           6,600



                                   Account 5289
                                Deposit                                     Debit
Deposit date        Payor       amount        Debit date       Payee       amount

   1/7/2008     Artnouveau      $30,000          1/8/2008 Mr. Choi         $30,000
   2/1/2008     Artnouveau       30,000          2/1/2008 Cash              20,000
                                                 2/1/2008 Cash              10,000
  2/15/2008     Saehan Bank      60,000
  2/19/2008     Saehan Bank      25,000        2/20/2008   Mr. Choi         85,000
  2/29/2008     Mr. Choi        179,995        3/10/2008   Cash for wire   180,000
  3/18/2008     Artnouveau      100,000        3/20/2008   Artmonde        100,000
  4/16/2008     Artnouveau         5,000       4/16/2008   Richard Suh       5,000
 10/24/2008     Artnouveau         8,000     10/24/2008    Cash              8,000
  11/7/2008     Mr. Choi         15,000        11/7/2008   Hanmi Bank       15,000
                                          - 34 -

[*34]         2.     Respondent’s Evidence17

                     a.     Exhibit 4-J

        During her examination of Ms. Na’s return, RA Bolden received a letter

dated May 16, 2011, and signed by Ms. Na. In pertinent part, the body of the

letter reads as follows:

        I had large amounts of checks deposited into my 2008 checking
        account from, Artnouveau City USA, Inc, and Doo young Choi,
        major shareholder of Artnouveau City USA, Inc, however, all those
        deposits were withdrawn from his capital account from the Corp, and
        I either cashed the checks for him or we used the funds for gambling
        related expenses, such as seed money and travel expenses.

On its face the letter both supports and contradicts Ms. Na’s testimony: The letter

accords with her contention that many of the unreported deposits into her accounts

were of Mr. Choi’s funds, but it suggests that along with Mr. Choi, Ms. Na made

use of those funds for gambling and travel. To the extent of this latter suggestion

the letter undermines Ms. Na’s credibility.

        But although Ms. Na signed the letter, she testified that she did not write it.

Rather, she explained, Mr. Qua, whom she believed to be a former IRS revenue


        17
        Exhibits 1-J, 2-J, and 7-J are, respectively, Ms. Na’s 2008 Form 1040, her
Form 872 for the same tax year, and the notice of deficiency. Exhibits 3-J and 8-J
through 13-J consist of RA Bolden’s bank deposits analysis and the underlying
bank records. These exhibits speak for themselves, and we have integrated them
into our findings of fact. We will not revisit them here.
                                        - 35 -

[*35] agent and who assisted her during some portion of the audit, wrote the letter

at her request because of her poor English reading and writing skills. On the basis

of Ms. Na’s evident difficulty with English, we find this explanation plausible.

After Mr. Row translated the letter for her, Ms. Na protested that the pronoun

“we” in the excerpted paragraph should be changed to “he”--a one-letter

modification that would render the letter wholly consistent with Ms. Na’s story.

Especially considering that respondent’s translator apparently may have

mistranslated “he” as “we” during the trial, see supra note 13, we find it plausible

that Mr. Qua made a similar error.

                    b.    Exhibits 5-J and 6-J

      Ms. Na signed account agreements with Hanmi Bank upon opening account

0349 and account 5289. The agreements identify Ms. Na as the sole owner of and

authorized signatory on the accounts.18 Artnouveau maintained its own bank

accounts, as did Mr. Choi, so neither the company nor the owner had any obvious

business need to funnel money through a worker’s accounts. However, neither the


      18
        Handwritten annotations on the agreements, presumably made by a Hanmi
Bank employee, reflect that account 5289 and account 0349 were closed in 2010,
two years after the tax year at issue. On a stamped line for “REASON”, the
handwritten annotations read “Moving Faraway” [sic] and “Not Used”. These
facts bear no obvious relevance to Ms. Na’s 2008 income, and as respondent made
no attempt at trial or on brief to connect the dots, we will afford them little weight.
                                        - 36 -

[*36] contents of the account agreements nor the fact that Artnouveau and Mr.

Choi had separate bank accounts is at all inconsistent with Ms. Na’s version of the

facts.

                     c.    RA Bolden’s Testimony

         Respondent contends that Ms. Na was a licensed real estate agent who

conducted business with and earned commissions through Artnouveau, and

respondent offered RA Bolden’s testimony to support this contention. After

sketching the process she followed in her bank deposits analysis, RA Bolden

testified that she had determined that Ms. Na “was in real estate sales” on the basis

of Ms. Na’s 2008 Schedule C and her initial interview with Ms. Na. RA Bolden’s

“understanding” was that Ms. Na “would get clients or people, investors, and try

to make a transaction. And she collected the money sometimes. And then she

would return the money to Artnouveau less her commission.”

         Although we found RA Bolden a credible witness, we cannot simply defer

to her “understanding”. Neither of the sources upon which that understanding was

allegedly predicated renders it persuasive. Ms. Na’s 2008 return identified her

occupation as “real estate sales”. The appended Schedule C reported her

“[p]rincipal business or profession” as “[o]ffices of real estate agents & brokers”.

Mr. Chyun, not Ms. Na, prepared these documents. On cross-examination Mr.
                                        - 37 -

[*37] Chyun affirmed that Schedule C says what it says, but respondent’s counsel

did not ask him to vouch for its accuracy or to describe Ms. Na’s real estate

activities in any greater detail.19 Indeed, no other testimony or documentary

evidence established Ms. Na’s credentials or what she actually did at

Artnouveau.20 One may reasonably infer from the record that Artnouveau was a

real estate agency, but Ms. Na could have been a secretary there as easily as a real

estate agent.

      To the extent that RA Bolden’s conclusion rests upon her initial interview

with Ms. Na, we can accord little weight to a factual conclusion arrived at through

dialogue with a person of such limited English-language proficiency as Ms. Na.

RA Bolden did not explain whether Ms. Na had expressly described her duties at

Artnouveau. She did not state whether she had specifically asked Ms. Na about

her activities during 2008, as opposed to the time of the audit. And she did not

elaborate on the types of clients or investors Ms. Na allegedly secured or the types

of transactions in which she encouraged them to engage. Absent any specifics



      19
         Similarly, the parties stipulated that Ms. Na’s “Schedule C business is real
estate sales.”
      20
       Although during her opening statement respondent’s counsel admitted
ignorance as to Ms. Na’s role at Artnouveau, respondent’s counsel did not cross-
examine Ms. Na about her job duties.
                                         - 38 -

[*38] about the basis for RA Bolden’s understanding or about what otherwise

transpired during the interview, we find RA Bolden’s testimony concerning Ms.

Na’s real estate activities to be of limited value.

      In any event, even assuming that Ms. Na worked for Artnouveau as a real

estate agent or broker and earned commissions in 2008, she would not necessarily

have received additional income from this activity beyond that reported on her

2008 Schedule C. At most, respondent demonstrated a plausible source for the

unreported deposits but offered no evidence linking the deposits to that source.

Although this showing sufficed to satisfy respondent’s threshold burden, and to

place the burden of proof squarely on Ms. Na, see supra pp. 14-19, we do not find

it highly probative when considered alongside other evidence. Moreover, we note

that, according to Mr. Chyun, Ms. Na reported income of no more than $100,000

for prior years, and the record discloses no plausible explanation for the dramatic

increase in earned income respondent determined for 2008.

      C.     The Outcome

      We decide this deficiency case on the preponderance of the evidence. See

Bronstein v. Commissioner, 138 T.C. 382, 384 (2012).
                                       - 39 -

[*39]         1.    Weighing the Evidence

        In unreported income cases such as this one, we and the Court of Appeals

for the Ninth Circuit have generally found against the taxpayer when the evidence

offered consists principally of the taxpayer’s own testimony and that testimony is

either vague and improbable or uncorroborated by other evidence. See, e.g.,

Delaney v. Commissioner, 743 F.2d at 672 (where taxpayers’ case consisted solely

of taxpayer husband’s testimony that assets allegedly representing unreported

income were purchased with posttax or tax-free income, holding that Tax Court

could properly reject testimony as “vague and implausible”); Geiger v.

Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971) (where taxpayer’s evidence

consisted of her own testimony and that of her accountant, both highly general and

summary in nature, holding that Tax Court properly rejected the testimony), aff’g

T.C. Memo. 1969-159; Parks v. Commissioner, 94 T.C. 654, 659 (1990) (where

taxpayer’s evidence consisted of her own, “incredible” testimony and the

contradictory and somewhat irrelevant testimony of a witness, rejecting the

testimony).

        On the other hand, a taxpayer in an unreported income case need not

corroborate his own testimony to satisfy his burden of proof. Potts, Davis & Co.

v. Commissioner, 431 F.2d 1222, 1225 (9th Cir. 1970) (where the only evidence in
                                        - 40 -

[*40] the record concerning a disputed factual issue was the testimony of two

witnesses for the taxpayer, observing that “[t]he Tax Court is not * * * free to

ignore the uncontroverted testimony” but “need not necessarily accept the

uncontroverted testimony of the taxpayer” where such testimony was “almost

wholly conclusory”), aff’g T.C. Memo. 1968-257.

      Respondent asserts that Ms. Na’s testimony was incredible and contends

that Ms. Na offered no evidence beyond that testimony to prove she received the

unreported deposits to her Hanmi Bank accounts as an informal agent or trustee or

acted as a mere conduit for the funds. If that were true, we would not be obliged

to accept Ms. Na’s testimony as evidence probative of her theory. E.g., Geiger v.

Commissioner, 440 F.2d at 689. Yet the record here does not support

respondent’s assertion.

      We found Ms. Na’s testimony remarkable, but not incredible. And

crucially, other evidence in the record corroborates it: Mr. Chyun credibly

testified to Ms. Na’s history of reporting no more than $100,000 of income. He

also testified to a conversation with Ms. Na, occurring at the time of the events
                                        - 41 -

[*41] concerned, in which she provided the same explanation for her gambling

winnings as the one she offered at trial.21

      Exhibit 16-P elaborates, in detail, on Ms. Na’s general testimony concerning

her payments and withdrawals on Mr. Choi’s behalf. Of course, income is at issue

here, not deductions. Exhibit 16-P does not identify specific deposits that Ms. Na

claims she received or accepted as a mere conduit for Mr. Choi. A conduit

transaction involves two steps: a payment by the payor to the intermediary, and a

payment by the intermediary to the payee. Ms. Na has offered evidence

concerning only the second step.

      Critically, however, her bank records reveal a striking pattern of matching

deposits and withdrawals consistent with her story. For example, Ms. Na contends

that she paid “back to” Artmonde $280,000 in the form of two checks: a $100,000

check payable to Artmonde, and a $180,000 check payable to “cash for wire”. See


      21
        Mr. Chyun testified on Ms. Na’s behalf, not respondent’s, and her prior,
out-of-court statement was presumably offered for the truth of the matter asserted.
Although, during her testimony, Ms. Na denied gambling with Mr. Choi, and
respondent’s counsel challenged the credibility of that denial, Ms. Na testified
after Mr. Chyun, so her prior statement could not have been offered to rehabilitate
her after respondent’s counsel’s attempted impeachment. Hence, Ms. Na’s prior
statement as recounted by Mr. Choi was hearsay. See Fed. R. Evid. 801(c),
(d)(1)(B), (2). However, respondent’s counsel did not object to the statement’s
admission and had a full and fair opportunity to cross-examine both Mr. Chyun
and Ms. Na concerning it.
                                       - 42 -

[*42] supra p. 29. Artmonde cashed the $100,000 check on March 20, 2008, two

days after Ms. Na deposited a $100,000 check from Artnouveau. The $180,000

“cash for wire” check was cashed on March 10, 2008, 12 days after Ms. Na

received a $179,995 wire transfer from Mr. Choi.

      On the other side of the scales, the letter Mr. Qua drafted for Ms. Na is of

little probative value given Mr. Chyun’s testimony. That Artnouveau and Mr.

Choi had their own bank accounts does not mean that they did not also use Ms.

Na’s. Moreover, Mr. Choi may have had a motive to use Ms. Na’s accounts.

Before trial, at the calendar call, Ms. Na asserted that Mr. Choi was not a U.S.

person. Respondent unsuccessfully attempted to introduce evidence to this effect,

so we assume that respondent agrees. No evidence on this point was admitted, but

if Mr. Choi were a nonresident alien, he could potentially evade U.S. tax by

funneling payments received from third parties and/or between himself and his

companies through Ms. Na’s accounts. Such an intent would be consistent with

Mr. Choi’s use of Ms. Na’s Social Security number to obtain player’s cards at

casinos. Finally, RA Bolden’s testimony, at most, proves that Ms. Na worked on

commission as a real estate broker, but as explained supra pp. 36-38, we have

good reason to doubt that this activity would produce income in the amount

alleged by respondent.
                                       - 43 -

[*43] Finally, no evidence in the record reflects that Ms. Na derived any benefit

from the funds she alleges she received, held, and disbursed for Mr. Choi. For

example, Ms. Na testified that the checks she wrote to various jewelers and for

other “expensive items” were for Mr. Choi’s shopping. From the letter drafted by

Mr. Qua and Ms. Na’s correction of it, we infer that Ms. Na may have used cash

withdrawn from her accounts to pay her own traveling expenses when she

accompanied Mr. Choi on his gambling forays. Given that she apparently viewed

her role as Mr. Choi’s casino translator as an employment duty, however, any

benefit she realized was, at best, incidental. See, e.g., Pierson v. Commissioner,

T.C. Memo. 1976-281, 35 T.C.M. (CCH) 1256, 1259, 1261 (1976) (excluding

from income kickback funds received as an intermediary in a public corruption

scheme, notwithstanding that the taxpayer derived incidental benefit from

enjoyment of his enhanced political status).

      We conclude that evidence supporting Ms. Na’s theory constitutes a

preponderance of the evidence in the record. Indeed, respondent offered no

directly contrary evidence. In Estate of Mason v. Commissioner, 64 T.C. 651, 659

(1975), aff’d, 566 F.2d 2 (6th Cir. 1977), the taxpayer explained bank deposits in

excess of reported income as resulting from “his cashing of checks for, and

making loans to, other persons and from check kiting.” We deemed him “not an
                                       - 44 -

[*44] altogether forthright witness”. Id. Nevertheless, because two other

witnesses each partially corroborated his testimony and because scrutiny of his

account records revealed a pattern of deposits and check payments consistent with

check kiting, we “excluded from income any deposit that might, based on the

available evidence, represent the proceeds of a kited check.” Id. at 660-661. We

think the quantum of evidence presented by Ms. Na analogous to that presented in

Estate of Mason. Ms. Na was a forthright witness, one other witness partially

corroborated her testimony, and analysis of her account records reveals a marked

pattern consistent with her explanation. Accordingly, we will exclude from her

income unreported deposits that, taking into account the available evidence,

represent funds she received as a mere conduit or informal agent or trustee for Mr.

Choi. See Ford Dealers Adver. Fund, Inc. v. Commissioner, 55 T.C. at 773-774.

            2.     Computing Unreported Income

      Respondent determined unreported income of $1,013,769.61. Ms. Na

attempted to show that she served as a conduit for payments totaling

$1,011,502.80 in 2008. Ms. Na offered no evidence or argument concerning the

remaining $2,266.81. We will make one addition and impose two reductions to

the amount for which she did present evidence.
                                       - 45 -

[*45] Beginning with the reductions, first, one of the payments identified in

Exhibit 16-P, a $181.61 direct debit to T-Mobile, was made in December 2007 and

thus cannot have been made as a conduit for funds deposited in 2008. See supra

note 16. Hence, we will subtract this amount. Second, another item identified in

Exhibit 16-P is not a payment, but a deposit. Ms. Na included the $100,000 check

from Newkoa, LLC, that she deposited into account 0349 on April 30, 2008,

among the items “paid back to” Mr. Choi from that account. Ms. Na did testify

that she had received this deposit on Mr. Choi’s behalf and remitted the funds to

him, but she has not identified, and her bank records do not disclose, a

corresponding outbound payment. See supra note 15. We thus can only speculate

as to whether (1) Ms. Na “paid back” this $100,000 deposit separately from the

conduit payments she identified on Exhibit 16-P, or (2) this $100,000 was

included within the payments identified on Exhibit 16-P. To assume the former

could result in double-counting of the $100,000 conduit flow and a consequent

windfall to Ms. Na. To assume the latter could result in taxing Ms. Na on

$100,000 of income that was not hers. Because Ms. Na bears the burden of proof,

we will construe the deficiency in the evidence concerning this $100,000 deposit

against her and subtract it from the total amount of conduit payments she

computed.
                                       - 46 -

[*46] We now turn to the addition to Ms. Na’s computed amount. The monthly

statements for account 0349 reflect that, during 2008, Ms. Na paid a total of

$6,596.17 to Mercedes Benz. Ms. Na did not identify these debits as conduit

payments in Exhibit 16-P. However, after respondent’s counsel highlighted these

payments in her opening statement, Ms. Na testified: “That was a payment I made

for him. He needs a car. I made his car payment. Not mine.” Given that Ms. Na

tried her case pro se and prepared Exhibit 16-P in haste, see supra note 16, we give

little weight to her omission of the Mercedes Benz payments from that exhibit in

view of her emphatic, unequivocal, and uncontroverted testimony that the

Mercedes respondent’s counsel referenced was not hers. On the basis of that

testimony, we hold that the unreported deposits corresponding to these payments

were not income to Ms. Na, and we will add $6,596.17 to her computation of

conduit payments.

      In addition to these three modifications to Ms. Na’s computation of

nonincome, we will make three reductions to respondent’s computation of income.

In computing Ms. Na’s taxable income on the basis of her bank deposits analysis,

RA Bolden included as income the face amounts of three checks that never cleared

Ms. Na’s accounts. See supra p. 8. Given that Ms. Na never actually received

these funds, she could not have had “complete dominion” over them, see
                                       - 47 -

[*47] Commissioner v. Glenshaw Glass Co., 348 U.S. at 431, and they do not

represent income to her. We will thus overrule respondent’s determination of

unreported income to the extent of the sum of those three payments, $17,400.

       Accordingly, we hold that Ms. Na has established by a preponderance of the

evidence that she received $917,917.36 during 2008 as a conduit for Mr. Choi.

We further hold that she must include $78,452.25 in income, and we sustain

respondent’s determination to that extent.

III.   Self-Employment Tax

       Section 1401(a) imposes a tax in addition to income tax “on the self-

employment income of every individual”. Section 1402(b) defines self-

employment income as the “net earnings from self-employment” in excess of the

Social Security contribution and benefit base, less any wages received during the

tax year. In turn, net earnings from self-employment “means the [net] * * *

income derived by an individual from any trade or business carried on by such

individual”. Sec. 1402(a).

       Respondent determined that Ms. Na earned additional income from the

conduct of a real estate sales business. On brief, Ms. Na contends that she earned

no income from real estate sales during 2008, worked only as a secretary, and held

funds as a bailee for Mr. Choi. She failed to prove her bailee theory with respect
                                        - 48 -

[*48] to $78,452.25 of alleged income, and the nature of her work at Artnouveau

is irrelevant to whether she earned the $78,452.25 as compensation for that work.

Respondent’s determination is entitled to the presumption of correctness, and

absent evidence of another plausible source for this additional $78,452.25 of

income, we find that it constitutes net earnings from self-employment and is

subject to self-employment tax.22

      22
         Some evidence in the record suggests that Ms. Na might properly have
been classified as an employee of Artnouveau, in which case she would not be
subject to self-employment tax. Instead, her employer would be obliged to
withhold her share of tax due under the Federal Insurance Contributions Act
(FICA). See sec. 3102.
        For FICA purposes, whether a worker qualifies as an employee is generally
determined under the common law rules. See sec. 3121(d)(2). “The courts have
considered several factors in determining the existence of the employer-employee
relationship. Among those factors are: (1) the right to control the details of the
work; (2) furnishing of tools and the work place; (3) withholding of taxes,
workmen’s compensation and unemployment insurance funds; (4) right to
discharge; and (5) permanency of the relationship.” Prof’l & Exec. Leasing, Inc.
v. Commissioner, 862 F.2d 751, 753 (9th Cir. 1988), aff’g 89 T.C. 225 (1987).
We accord the first of these factors, right to control, the most weight. See Chin v.
United States, 57 F.3d 722, 725 (9th Cir. 1995).
        On one hand, Ms. Na testified that Mr. Choi established her working hours
and that she made deposits and withdrawals and wrote checks from her accounts
on Mr. Choi’s instructions. These facts support the first factor. She further
testified that she performed services on Artnouveau’s premises, which supports
the second factor. On the other hand, the record affords no information
concerning what services Ms. Na performed for Artnouveau while in her
workplace. She wrote, cashed, and deposited checks for Mr. Choi, but she has
never suggested that these activities comprised the sum total of her job or that she
was being paid for them. The Court lacks sufficient evidence to determine what
                                                                        (continued...)
                                        - 49 -

[*49] IV.    Accuracy-Related Penalty

      Respondent determined a section 6662(a) accuracy-related penalty of

$73,459.40 on the basis of, in the alternative, negligence or disregard of rules and

regulations, a substantial understatement of income tax, or a substantial valuation

misstatement. As a general rule, the Commissioner bears the burden of production

and “must come forward with sufficient evidence indicating that it is appropriate

to impose the relevant penalty.” Higbee v. Commissioner, 116 T.C. 438, 446

(2001); see sec. 7491(c). Once respondent has met this burden of production, the

burden will shift to petitioner to prove an affirmative defense or that she is

otherwise not liable for the penalty. See Higbee v. Commissioner, 116 T.C. at

446-447.




      22
          (...continued)
duties Ms. Na performed to earn the additional income at issue in this case, and we
thus cannot ascertain to what degree Mr. Choi controlled her performance.
Further, we have no facts concerning the “tools” she employed (other than bank
accounts that she herself supplied) or the permanency of her work. The record
suggests that neither Artnouveau nor Mr. Choi withheld income or FICA taxes
from the remuneration paid to Ms. Na. In short, the limited facts before us are a
mixed bag. Ms. Na did not dispute her employment classification in her petition,
at trial, or on brief, and the evidence before us does not suffice to overcome the
presumption in favor of respondent.
                                        - 50 -

[*50] A.     Petitioner’s Liability

      Section 6662(a) and (b)(3) provides for imposition of a 20% penalty on the

portion of an underpayment of tax required to be shown on a return that is

attributable to a substantial valuation misstatement. For returns filed on or after

August 17, 2006, as is relevant here, a substantial valuation misstatement occurs

when “the value of any property (or the adjusted basis of any property) claimed on

any return of tax imposed by chapter 1 is 150 percent or more of the amount

determined to be the correct amount of such valuation or adjusted basis (as the

case may be)”. Sec. 6662(e)(1)(A). The notice of deficiency does not explain

what property’s value or adjusted basis respondent believes Ms. Na misstated.

Respondent did not discuss this determination at trial and has not addressed it on

brief. As the Court can find no basis for this determination in the record, we find

Ms. Na not liable for the substantial valuation misstatement penalty.

      Section 6662(a) and (b)(1) and (2) provides for imposition of a 20% penalty

on the portion of an underpayment of tax attributable to negligence or disregard of

rules and regulations or a substantial understatement of income tax.

“‘[N]egligence’ includes any failure to make a reasonable attempt to comply with

the provisions of * * * [the Internal Revenue Code]”. Sec. 6662(c). It constitutes

“‘a lack of due care or the failure to do what a reasonable and ordinarily prudent
                                       - 51 -

[*51] person would do under the circumstances.’” Freytag v. Commissioner, 89

T.C. 849, 887 (1987) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), aff’g 43 T.C. 168 (1964) and T.C. Memo. 1964-299), aff’d, 904 F.2d

1011 (5th Cir. 1990), aff’d, 501 U.S. 868 (1991). “‘Negligence’ also includes any

failure by the taxpayer to keep adequate books and records or to substantiate items

properly.” Sec. 1.6662-3(b)(1), Income Tax Regs. A substantial understatement

of income tax as to an individual is an understatement that exceeds the greater of

$5,000 or 10% of the tax required to be shown on the return. Sec. 6662(d)(1)(A).

      Whether a substantial understatement exists, and if so, in what amount, will

depend upon the recalculation of Ms. Na’s tax liability in view of this opinion.

We leave this calculation to the parties under Rule 155. Regardless of whether

Ms. Na is liable for the substantial understatement penalty, however, Ms. Na is

liable for the negligence penalty.23

      On that score, respondent contends that Ms. Na failed to maintain adequate

books and records. Ms. Na did not maintain contemporaneous records of the

funds she received and paid out on Mr. Choi’s behalf. She did not establish a

formal trust relationship or advise Hanmi Bank that she was using the accounts as


      23
       In any event, Ms. Na will be liable for only a 20% penalty, as the
accuracy-related penalties do not stack. See sec. 1.6662-2(c), Income Tax Regs.
                                         - 52 -

[*52] trust accounts. She commingled her own funds with Mr. Choi’s in the

accounts, compounding the uncertainty created by her inadequate recordkeeping.

We concluded that Ms. Na’s attempt at reconstructing records, together with her

testimony, sufficed to carry her burden of proof in the absence of any contrary

evidence. But a reasonable and ordinarily prudent person would have

contemporaneously documented the nature of the cashflows as well as her status

as a mere agent, conduit, or trustee, including, in the latter case, the identity of the

trust beneficiary or beneficiaries. Ms. Na took none of these steps. We conclude

that respondent has satisfied his burden of production as to the negligence penalty.

See sec. 1.6662-3(b)(1), Income Tax Regs.

      B.     Petitioner’s Defense

      Section 6664(c) provides a defense to the section 6662(a) penalties with

respect to any portion of an underpayment of tax for which the taxpayer had

reasonable cause and with respect to which the taxpayer acted in good faith. “The

determination of whether a taxpayer acted with reasonable cause and in good faith

is made on a case-by-case basis, taking into account all pertinent facts and

circumstances.” Sec. 1.6664-4(b)(1), Income Tax Regs. “Generally, the most

important factor is the extent of the taxpayer’s effort to assess the taxpayer’s

proper tax liability.” Id.
                                        - 53 -

[*53] In her posttrial briefs, Ms. Na asserts, without elaboration, that she had a

reasonable basis for not reporting as income funds that she temporarily held for

and returned to Mr. Choi.24 While that assertion may well be accurate, it sheds no

light on whether Ms. Na had reasonable cause for her failure to report as income

the additional deposits to her accounts beyond the amounts we have held she

received as a conduit for Mr. Choi. As to $2,266.81 of her unreported deposits,

Ms. Na offered no argument or evidence that these constituted conduit payments.

As to another $76,185.44, Ms. Na failed to establish that she received and paid out

these deposits on Mr. Choi’s behalf. She maintained no contemporaneous records

of the conduit payments she received, and she offered no testimony or other

evidence concerning her efforts to ascertain her proper tax liability.

      Ms. Na has not explained the legal theory underlying her reasonable cause

claim on brief;25 nor has she pointed to any specific factual support for it in the


      24
         Ms. Na did not raise this affirmative defense or plead any of the relevant
facts in her petition. Ordinarily, an affirmative defense not pleaded “is deemed to
be waived.” Gustafson v. Commissioner, 97 T.C. 85, 90 (1991). Because
respondent has not objected, however, and because both parties address the
defense in their briefs, we will treat it as an issue tried by implied consent of the
parties under Rule 41(b)(1).
      25
        A taxpayer may establish a sec. 6664(c) reasonable cause defense by
showing that he or she relied reasonably and in good faith on a third party’s advice
in taking the disputed tax position. See sec. 1.6664-4(c), Income Tax Regs.; see
                                                                       (continued...)
                                        - 54 -

[*54] record. Even if we construe her claim as an assertion that she believed all

funds she deposited during 2008 in excess of her reported gross income belonged

to Mr. Choi, we have virtually no evidentiary basis on which to evaluate the

reasonableness of that belief. The evidence we do have suggests that belief was

not reasonable. Given that Ms. Na failed to maintain contemporaneous records of

which deposits were conduit payments and which were her own, she apparently

had no factual basis upon which to distinguish among them in computing her

income at yearend. As Ms. Na bears the burden of proof with regard to her

affirmative defense, the Court will not speculate as to the specifics of her theory or


      25
         (...continued)
also Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000) (holding
that, for a taxpayer to rely reasonably upon advice, “the taxpayer must prove * * *
that * * * : (1) The adviser was a competent professional who had sufficient
expertise to justify reliance, (2) the taxpayer provided necessary and accurate
information to the adviser, and (3) the taxpayer actually relied in good faith on the
adviser’s judgment.”), aff’d, 299 F.3d 221 (3d Cir. 2002); Charlotte’s Office
Boutique, Inc. v. Commissioner, 425 F.3d 1203, 1212 & n.8 (9th Cir. 2005)
(quoting three-prong test in Neonatology Assocs. with approval), aff’g 121 T.C.
89 (2003), supplemented by T.C. Memo. 2004-43.
       Although Ms. Na did rely upon Mr. Chyun--who, as an experienced C.P.A.,
was a competent professional with sufficient expertise to justify reliance--to
prepare her income tax returns, she has not alleged reliance upon his advice as a
basis for her reasonable cause defense. Even if she had, however, Ms. Na offered
no evidence that she ever discussed her bank deposits with Mr. Chyun or that she
received and relied upon advice from him as to the deposits’ character, before she
filed her 2008 tax return. Hence, the record does not support a finding of
reasonable reliance.
                                           - 55 -

[*55] infer facts not in evidence. We instead conclude that she has not carried her

burden with respect to the reasonable cause defense.

      Accordingly, we hold that Ms. Na is liable for the section 6662(a) and (b)(1)

negligence penalty with respect to the portion of the underpayment attributable to

her failure to report $78,452.25 of income.

      The Court has considered all of the parties’ contentions, arguments,

requests, and statements. To the extent not discussed herein, we conclude that

they are meritless, moot, or irrelevant.

      To reflect the foregoing,


                                                    Decision will be entered under

                                           Rule 155.
                                        - 56 -

[*56]                               APPENDIX A

                         Account 0349 Deposits By Payor

    Record Citation      Pay Date             Payor            Transfer Type   Amount In


8-J at 81, 83          03/18/08      Account 5289              Check              $5,000.00
8-J at 81, 93          04/03/08      Account 5289              Check             $20,000.00
8-J at 96, 109         05/09/08      Account 5289              Check            $300,000.00
8-J at 169             12/02/08      Account 5289              Wire              $10,000.00
8-J at 170             12/08/08      Account 5289              Wire              $10,000.00
8-J at 169             12/18/08      Account 5289              Wire               $5,000.00
8-J at 184             01/08/09      Account 5289                                $20,000.00
                                     Total:                                     $370,000.00

8-J at 64, 66          01/16/08      Angie H. In [$500 loan]   Check                $500.00
8-J at 96, 108         05/05/08      Angie H. In               Check                $500.00
8-J at 111, 113-115    05/16/08      Angie H. In [$100 cash]   Check                $400.00
8-J at 135, 137, 139   07/21/08      Angie H. In               Check                $500.00
                                     Total:                                       $1,900.00

8-J at 59, 61          01/02/08      Artnouveau                Check             $10,000.00
8-J at 59, 62          01/07/08      Artnouveau                Check             $20,000.00
8-J at 64, 67          01/16/08      Artnouveau                Check             $10,000.00
8-J at 64, 68          01/23/08      Artnouveau                Check              $3,162.00
8-J at 64, 69          01/23/08      Artnouveau                Check              $6,794.50
8-J at 64, 70          02/05/08      Artnouveau                Check             $20,000.00
8-J at 64, 72          02/15/08      Artnouveau                Check              $1,500.00
8-J at 73, 75          02/29/08      Artnouveau                Check              $1,500.00
8-J at 73, 77          03/04/08      Artnouveau                Check              $1,162.62
8-J at 73, 78          03/05/08      Artnouveau                Check             $30,000.00
8-J at 73, 79          03/07/08      Artnouveau                Check                $904.80
8-J at 81, 88          03/27/08      Artnouveau                Check              $1,500.00
8-J at 81, 89          04/01/08      Artnouveau                Check              $1,500.00
8-J at 81, 90          04/01/08      Artnouveau                Check             $21,000.00
8-J at 81, 94          04/04/08      Artnouveau                Check             $10,000.00
8-J at 81, 95          04/15/08      Artnouveau                Check              $1,500.00
8-J at 96, 99, 101     04/28/08      Artnouveau                Check             $20,000.00
8-J at 96, 103         04/30/08      Artnouveau                Check              $1,500.00
8-J at 96, 104         04/30/08      Artnouveau                Check              $2,769.68
8-J at 96, 110         05/15/08      Artnouveau                Check              $1,500.00
8-J at 111, 116        05/20/08      Artnouveau                Check             $14,500.00
                                        - 57 -

[*57]
8-J at 111, 117           05/20/08   Artnouveau   Check    $10,000.00
8-J at 111, 119, 121      05/30/08   Artnouveau   Check     $1,500.00
8-J at 111, 127           06/16/08   Artnouveau   Check     $1,500.00
8-J at 128, 130           07/01/08   Artnouveau   Check     $1,500.00
8-J at 128, 133           07/10/08   Artnouveau   Check     $7,170.44
8-J at 128, 134           07/10/08   Artnouveau   Check    $19,200.00
8-J at 135, 137, 138      07/21/08   Artnouveau   Check     $1,500.00
8-J at 135, 140, 141      08/01/08   Artnouveau   Check     $1,500.00
8-J at 135, 142, 143      08/11/08   Artnouveau   Check     $6,600.00
8-J at 135, 142, 144      08/11/08   Artnouveau   Check    $19,000.00
8-J at 135, 145           08/15/08   Artnouveau   Check     $1,400.00
8-J at 149, 152           08/29/08   Artnouveau   Check       $350.00
8-J at 149, 151           08/29/08   Artnouveau   Check     $1,400.00
8-J at 149, 153           09/05/08   Artnouveau             $6,000.00
8-J at 149, 155           09/15/08   Artnouveau   Check     $1,400.00
8-J at 156, 159           10/15/08   Artnouveau   Check       $658.00
8-J at 156, 158           10/15/08   Artnouveau   Check     $1,400.00
8-J at 156, 160           10/17/08   Artnouveau   Check     $2,000.00
8-J at 161, 164           10/31/08   Artnouveau   Check     $1,400.00
8-J at 161, 163           10/31/08   Artnouveau   Check     $4,603.87
8-J at 161, 166           11/14/08   Artnouveau   Check     $1,600.00
8-J at 161, 167           11/17/08   Artnouveau   Check     $3,764.31
8-J at 169, 171           11/21/08   Artnouveau   Check     $1,210.77
8-J at 169, 173           11/28/08   Artnouveau   Check     $1,600.00
8-J at 169, 174           12/03/08   Artnouveau   Check     $1,974.00
8-J at 169, 179, 181      12/15/08   Artnouveau   Check     $1,600.00
8-J at 184, 189           12/31/08   Artnouveau   Check     $1,600.00
                                     Total:               $284,224.99

8-J at 81, 84-85          03/24/08   Cash         Cash        $100.00
8-J at 81, 86-87          03/24/08   Cash         Cash        $500.00
8-J at 96, 99, 100        04/28/08   Cash         Cash      $5,000.00
8-J at 111, 119, 120      05/30/08   Cash         Cash      $5,000.00
8-J at 111, 123, 124      06/02/08   Cash         Cash      $8,000.00
8-J at 111, 125, 126      06/03/08   Cash         Cash      $5,000.00
8-J at 135, 147, 148      08/18/08   Cash         Cash      $6,000.00
8-J at 169, 175, 176      12/04/08   Cash         Cash      $3,000.00
8-J at 169, 177, 178      12/08/08   Cash         Cash      $3,000.00
8-J at 169, 179, 180      12/15/08   Cash         Cash        $100.00
8-J at 169, 182, 183      12/18/08   Cash         Cash      $2,100.00
8-J at 184, 186, 187      12/22/08   Cash         Cash      $3,000.00
8-J at 184, 10-J at 225   01/05/09   Cash         Cash      $3,000.00
                                     Total:                $43,800.00
                                        - 58 -

[*58]

8-J at 59, 63           01/07/08     Chul & Shelly Kim    Check       $500.00
8-J at 96, 106          05/01/08     Chul & Shelly Kim    Check     $2,000.00
8-J at 111, 122         06/02/08     Chul & Shelly Kim    Check     $2,000.00
                                     Total:                         $4,500.00

8-J at 64, 71           02/14/08     Doo Young Choi       Check     $5,000.00
8-J at 73, 76           03/03/08     Doo Young Choi       Check     $2,100.00
8-J at 73, 80           03/12/08     Doo Young Choi       Check     $8,893.61
8-J at 96, 98           04/17/08     Doo Young Choi       Check     $9,900.00
8-J at 96, 99, 102      04/28/08     Doo Young Choi       Check     $1,800.00
8-J at 96, 107          05/01/08     Doo Young Choi       Check     $2,000.00
8-J at 135, 146         08/15/08     Doo Young Choi       Check        $18.00
8-J at 161, 165         11/13/08     Doo Young Choi       Check    $10,000.00
8-J at 161, 168         11/20/08     Doo Young Choi       Check     $2,984.22
8-J at 169, 172         11/21/08     Doo Young Choi       Check     $1,550.00
                                     Total:                        $44,245.83

8-J at 128, 131         07/01/08     Eric & Mihwa Mekus   Check     $1,000.00
                                     Total:                         $1,000.00

8-J at 81, 91           04/02/08     JK WW Enterprise     Check     $7,000.00
                                     Total:                         $7,000.00

8-J at 81, 92           04/03/08     Koram Consulting     Check     $1,609.00
                                     Total:                         $1,609.00

8-J at 128              07/03/08     Lee Gi Cheol         Wire      $5,976.50
                                     Total:                         $5,976.50

8-J at 96, 105, 16-P at 3 04/30/08   Newkoa LLC           Check   $100,000.00
                                     Total:                       $100,000.00

8-J at 128, 132         07/10/08     Pixma                Check      $500.00
                                     Total:                          $500.00

8-J at 149, 154         09/10/08     Sunmin Kim           Check     $2,834.94
8-J at 184, 188         12/23/08     Sunmin Kim           Check       $801.49
                                     Total:                         $3,636.43


8-J at 59               12/17/07     Unknown                        $3,000.00
8-J at 59               12/17/07     Unknown                       $10,000.00
                                - 59 -

[*59]
8-J at 59         12/26/07   Unknown                       $1,442.00
8-J at 59         12/28/07   Unknown                         $685.00
8-J at 59         12/28/07   Unknown                       $2,000.00
8-J at 184        01/16/09   Unknown                       $1,600.00
                             Total:                       $18,727.00

8-J at 111, 118   05/20/08   Voyager Insurance   Check       $12.72
                             Total:                          $12.72

                             GRAND TOTAL:                $887,132.47
                                       - 60 -

[*60]                              APPENDIX B

                        Account 5289 Deposits By Payor

      Record Citation    Pay Date            Payor   Transfer Type   Amount In


11-J at 226, 229        01/30/08    Account 0349     Check             $5,000.00
11-J at 230, 235        02/06/08    Account 0349     Check            $10,000.00
11-J at 260, 262, 264   06/05/08    Account 0349     Check             $6,000.00
11-J at 285, 287        08/14/08    Account 0349     Check            $18,000.00
11-J at 302             11/24/08    Account 0349     Wire             $10,000.00
11-J at 305             12/10/08    Account 0349     Wire             $15,000.00
                                    Total:                            $64,000.00

11-J at 230, 234        02/06/08    Angie H. In      Check               $500.00
11-J at 279, 284        07/25/08    Angie H. In      Check            $13,570.00
                                    Total:                            $14,070.00

11-J at 226, 228        01/07/08    Artnouveau       Check            $30,000.00
11-J at 230, 232        02/01/08    Artnouveau       Check            $30,000.00
11-J at 230, 233        02/05/08    Artnouveau       Check             $5,000.00
11-J at 242, 244        03/18/08    Artnouveau       Check           $100,000.00
11-J at 242, 245        03/31/08    Artnouveau       Check            $10,000.00
11-J at 246, 250        04/16/08    Artnouveau       Check             $5,000.00
11-J at 246, 248        04/16/08    Artnouveau       Check             $7,500.00
11-J at 246, 251        04/21/08    Artnouveau       Check             $1,828.00
11-J at 246, 252        04/21/08    Artnouveau       Check             $3,400.00
11-J at 246, 253        04/21/08    Artnouveau       Check             $1,995.00
11-J at 246, 255        04/24/08    Artnouveau       Check            $10,000.00
11-J at 279, 283        07/09/08    Artnouveau       Check            $13,050.00
11-J at 279, 282        07/09/08    Artnouveau       Check            $12,500.00
11-J at 279, 281        07/09/08    Artnouveau       Check            $16,500.00
11-J at 288, 292        09/09/08    Artnouveau       Check            $10,200.00
11-J at 288, 295        09/10/08    Artnouveau       Check             $4,500.00
11-J at 288, 294        09/10/08    Artnouveau       Check             $1,835.00
11-J at 288, 297        09/30/08    Artnouveau       Check             $1,400.00
11-J at 288, 296        09/30/08    Artnouveau       Check             $4,762.62
11-J at 298, 301        10/24/08    Artnouveau       Check             $8,000.00
11-J at 298, 300        10/24/08    Artnouveau       Check             $8,858.60
11-J at 305, 307        12/18/08    Artnouveau       Check             $5,013.05
11-J at 305, 308        12/18/08    Artnouveau       Check             $1,605.00
                                    Total:                           $292,947.27
                                            - 61 -

[*61]

11-J at 230, 236, 237      02/13/08     Cash             Cash           $100.00
11-J at 260, 262, 263      06/05/08     Cash             Cash         $8,800.00
11-J at 260, 265, 266      06/09/08     Cash             Cash         $8,550.00
11-J at 260, 267, 268      06/11/08     Cash             Cash         $7,800.00
11-J at 260, 269, 270      06/13/08     Cash             Cash         $8,500.00
11-J at 260, 271, 272      06/16/08     Cash             Cash         $7,200.00
11-J at 260, 273, 274      06/20/08     Cash             Cash         $8,500.00
11-J at 260, 275, 276      06/24/08     Cash             Cash         $6,500.00
11-J at 260, 277, 278      06/30/08     Cash             Cash         $5,500.00
                                        Total:                       $61,450.00

11-J at 288, 293           09/09/08     Chase Auto       Check          $47.98
                                        Total:                          $47.98

11-J at 230, 236, 238      02/13/08     Doo Young Choi   Check       $20,400.00
11-J at 230, 239           02/13/08     Doo Young Choi   Check       $10,000.00
11-J at 230                02/29/08     Doo Young Choi   Wire       $179,995.00
11-J at 246, 249           04/16/08     Doo Young Choi   Check        $9,900.00
11-J at 246, 254           04/21/08     Doo Young Choi   Check        $2,000.00
11-J at 256, 258           05/07/08     Doo Young Choi   Check      $349,900.00
11-J at 256, 259           05/27/08     Doo Young Choi   Check      $150,000.00
11-J at 302, 304           11/07/08     Doo Young Choi   Check       $15,000.00
                                        Total:                      $737,195.00

11-J at 226                01/31/08     Hanmi Bank       Interest       $270.65
11-J at 230                02/29/08     Hanmi Bank       Interest       $281.26
11-J at 242                03/31/08     Hanmi Bank       Interest       $375.66
11-J at 246                04/30/08     Hanmi Bank       Interest       $144.78
11-J at 256                05/30/08     Hanmi Bank       Interest       $239.16
11-J at 260                06/30/08     Hanmi Bank       Interest       $133.32
11-J at 279                07/31/08     Hanmi Bank       Interest       $243.49
11-J at 285                08/29/08     Hanmi Bank       Interest       $241.39
11-J at 288                09/30/08     Hanmi Bank       Interest       $275.51
11-J at 298                10/31/08     Hanmi Bank       Interest       $467.02
11-J at 302                11/28/08     Hanmi Bank       Interest       $225.66
11-J at 305                12/31/08     Hanmi Bank       Interest       $240.77
                                        Total:                        $3,138.67

11-J at 288, 290, 16-P at 27 09/05/08   Prima Escrow     Check       $18,103.89
11-J at 288, 291, 16-P at 28 09/05/08   Prima Escrow     Check        $4,000.00

                                        Total:                       $22,103.89
                                 - 62 -

[*62]

11-J at 230, 240   02/15/08   Saehan Bank    Cashier Ck     $60,000.00
11-J at 230, 241   02/19/08   Saehan Bank    Cashier Ck     $25,000.00
                              Total:                        $85,000.00

                              GRAND TOTAL:                $1,279,952.81
                                             - 63 -

[*63]                                 APPENDIX C

                              Account 0349 Debits by Payee

   Record Citation         Pay Date              Payee       Transfer   Amount Out

                                                            Type
8-J at 64, 9-J at 217    01/30/08     Account 5289       Check             $5,000.00
8-J at 64, 9-J at 218    02/06/08     Account 5289       Check            $10,000.00
8-J at 135, 9-J at 219   08/14/08     Account 5289       Check            $18,000.00
8-J at 170               11/24/08     Account 5289       Wire             $10,000.00
8-J at 169               12/10/08     Account 5289       Wire             $15,000.00
                                      Total:                              $58,000.00

8-J at 64, 16-P at 70 01/16/08        Angie In           Check             $1,500.00
                                      Total:                               $1,500.00

8-J at 96, 9-J at 190    05/09/08     Artnouveau         Check            $29,745.00
8-J at 96, 9-J at 191    05/09/08     Artnouveau         Check            $64,984.00
8-J at 96, 9-J at 192    05/09/08     Artnouveau         Check            $65,662.00
8-J at 96, 9-J at 193    05/09/08     Artnouveau         Check            $40,000.00
8-J at 96, 9-J at 194    05/09/08     Artnouveau         Check            $81,522.00
8-J at 96, 9-J at 195    05/09/08     Artnouveau         Check            $66,837.00
                                      Total:                             $348,750.00

8-J at 73, 9-J at 196 03/06/08        Belle Collection   Check            $30,000.00
                                      Total:                              $30,000.00

8-J at 64, 16-P at 53 01/16/08        Blank              Check              $204.70
8-J at 64, 16-P at 68 01/18/08        Blank              Check              $550.00
8-J at 64, 16-P at 64 01/24/08        Blank              Check              $217.37
8-J at 64, 16-P at 63 01/24/08        Blank              Check              $600.00
8-J at 64, 16-P at 62 01/24/08        Blank              Check              $500.00
8-J at 135, 9-J at 204, 08/11/08      Blank              Check             $5,000.00
16-P at 48
8-J at 149, 9-J at 220, 09/12/08      Blank              Check             $5,500.00
16-P at 49
8-J at 169, 9-J at 221, 12/18/08      Blank              Check             $5,013.05
16-P at 54
                                      Total:                              $17,585.12

8-J at 64, 9-J at 215, 01/16/08       Cash               Check             $5,000.00
12-J at 321, 16-P at
34
                                             - 64 -

[*64]
8-J at 64, 16-P at 56    01/25/08   Cash                   Check             $247.83
8-J at 64, 16-P at 55    01/29/08   Cash                   Check             $262.00
8-J at 73, 9-J at 216,   03/12/08   Cash                   Check           $8,850.00
16-P at 37
8-J at 81, 9-J at 197,   04/09/08   Cash                   Check           $5,250.00
16-P at 39
                                    Total:                                $19,609.83

8-J at 60                01/02/08   Chase Epay             Direct Debit       $33.00
8-J at 60, 16-P at 74    01/07/08   Chase Auto             Direct Debit    $1,977.76
8-J at 135               08/06/08   Chase Epay             Direct Debit       $99.00
8-J at 161               11/13/08   Chase Epay             Direct Debit    $1,152.99
                                    Total:                                 $3,262.75

8-J at 64, 16-P at 66    01/22/08   Computer On-Site Svc   Check              $85.00
8-J at 64, 16-P at 65    01/22/08   Computer On-Site Svc   Check             $380.00
8-J at 64, 16-P at 61    01/25/08   Computer On-Site Svc   Check              $85.00
8-J at 64, 16-P at 60    01/28/08   Computer On-Site Svc   Check             $800.00
                                    Total:                                 $1,350.00

8-J at 96                04/25/08   Credit Card            Direct Debit    $6,000.00
8-J at 96, 16-P at 74    05/05/08   Credit Card            Direct Debit    $9,332.91
8-J at 111, 16-P at 80   06/03/08   Credit Card            Direct Debit    $1,941.38
8-J at 128, 16-P at 81   07/07/08   Credit Card            Direct Debit    $1,807.27
8-J at 128               07/14/08   Credit Card            Direct Debit    $1,807.27
8-J at 135, 16-P at 82   07/24/08   Credit Card            Direct Debit    $5,470.89
8-J at 149, 16-P at 83   08/27/08   Credit Card            Direct Debit    $2,641.61
8-J at 161, 16-P at 84   10/23/08   Credit Card            Direct Debit    $5,197.70
8-J at 161, 16-P at 84   11/05/08   Credit Card            Direct Debit    $2,500.00
                                    Total:                                $36,699.03

8-J at 65                01/23/08   Deluxe Check           Direct Debit      $14.10
                                    Total:                                   $14.10

8-J at 161, 9-J at 205, 11/14/08    Downtown Motors        Check          $10,000.00
16-P at 50
                                    Total:                                $10,000.00

8-J at 59, 9-J at 199,   01/08/08   Doo Young Choi         Check          $20,000.00
16-P at 29
8-J at 81, 9-J at 200,   03/18/08   Doo Young Choi         Check           $9,968.00
16-P at 31
                                             - 65 -

[*65]
8-J at 81, 9-J at 201,   04/04/08   Doo Young Choi        Check          $18,000.00
16-P at 30
8-J at 81, 9-J at 202,   04/07/08   Doo Young Choi        Check           $6,609.00
16-P at 32
8-J at 96, 9-J at 203,   04/29/08   Doo Young Choi        Check          $25,000.00
16-P at 33
                                    Total:                               $79,577.00

8-J at 96, 9-J at 206,   05/05/08   Eun Mi Kwon           Check          $50,000.00
16-P at 40
                                    Total:                               $50,000.00

8-J at 81, 9-J at 207,   04/01/08   Gui Gui & Gu Gu       Check          $21,000.00
16-P at 38
                                    Total:                               $21,000.00

8-J at 59; 16-P at 72    01/04/08   Hampshire Place Apt   Check           $1,951.87
8-J at 65                02/06/08   EQ Hampshire PL       Direct Debit    $1,962.96
8-J at 112               06/16/08   EQ Hampshire PL       Check               $3.37
8-J at 156               10/03/08   EQ Hampshire PL       Check              $58.59
8-J at 156               10/06/08   EQ Hampshire PL       Direct Debit      $470.00
8-J at 161               11/05/08   EQ Hampshire PL       Check           $1,313.97
8-J at 170               12/02/08   EQ Hampshire PL       Direct Debit    $1,295.17
                                    Total:                                $7,055.93

8-J at 128, 9-J at 208, 07/11/08    Han Som               Check           $6,000.00
16-P at 45
                                    Total:                                $6,000.00

8-J at 135, 9-J at 209, 08/11/08    Hanmi Bank            Check           $6,600.00
16-P at 47
8-J at 169, 9-J at 210, 12/03/08    Hanmi Bank            Check          $10,000.00
16-P at 51
                                    Total:                               $16,600.00

8-J at 64, 16-P at 69    01/22/08   Helio                 Check            $178.96
                                    Total:                                 $178.96

8-J at 111, 9-J at 211, 05/29/08    Int'l Watches         Check          $10,000.00
16-P at 42
                                    Total:                               $10,000.00
                                            - 66 -

[*66]

8-J at 64, 16-P at 73   01/18/08   Joon Ha Kim            Check           $1,500.00
                                   Total:                                 $1,500.00

8-J at 64, 16-P at 67   01/24/08   LA Dep't Water & Power Check             $69.62
                                   Total:                                   $69.62

8-J at 73, 16-P at 57   02/19/08   Media Master           Check            $306.93
                                   Total:                                  $306.93

8-J at 135, 9-J at 196, 07/31/08   Mega Diamonds (Cash)   Check           $8,787.00

16-P at 46
                                   Total:                                 $8,787.00

8-J at 65               01/22/08   Mercedes Lease         Check             $582.66
8-J at 73               02/19/08   Mercedes Lease         Check             $582.66
8-J at 81               03/17/08   Mercedes Lease         Check             $582.66
8-J at 81               04/14/08   Mercedes Lease         Check             $582.66
8-J at 96               05/12/08   Mercedes Lease         Direct Debit      $582.66
8-J at 112              06/16/08   Mercedes Lease         Check             $582.66
8-J at 128              07/16/08   Mercedes Lease         Check             $582.66
8-J at 135              08/20/08   Mercedes Lease         Direct Debit      $582.66
8-J at 149              09/16/08   Mercedes Lease         Direct Debit      $582.66
8-J at 161              10/20/08   Mercedes Lease         Direct Debit      $582.66
8-J at 170              12/16/08   Mercedes Lease         Check             $769.57
                                   Total:                                 $6,596.17

8-J at 111, 9-J at 212, 05/29/08   Onyx Diamonds          Check          $13,500.00
16-P at 41
                                   Total:                                $13,500.00

8-J at 64, 16-P at 59   01/28/08   Oscar Cervantes        Check            $100.00
                                   Total:                                  $100.00

8-J at 64, 16-P at 58   01/29/08   Pitney Bowes           Check             $97.39
                                   Total:                                   $97.39

8-J at 111, 9-J at 213, 06/03/08   Saade Diamonds         Check           $5,000.00
16-P at 43
8-J at 111, 9-J at 214, 06/03/08   Saade Diamonds         Check           $5,900.00
16-P at 44
                                   Total:                                $10,900.00
                                         - 67 -

[*67]

8-J at 73, 16-P at 76    02/21/08   Safeco Insurance          Direct Debit   $1,913.40
                                    Total:                                   $1,913.40

8-J at 64, 16-P at 52    01/30/08   South Coast Helicopters   Check          $3,562.50
                                    Total:                                   $3,562.50

8-J at 59; 16-P at 71    01/07/08   Standard Parking          Check           $615.00
                                    Total:                                    $615.00

8-J at 65, 16-P at 75    01/24/08   T-Mobile                  Direct Debit     $74.58
8-J at 65, 16-P at 75    01/25/08   T-Mobile                  Direct Debit     $70.20
8-J at 73, 16-P at 76    02/25/08   T-Mobile                  Direct Debit    $119.63
8-J at 81, 16-P at 78    03/20/08   T-Mobile                  Direct Debit     $71.27
8-J at 96, 16-P at 77    04/25/08   T-Mobile                  Check            $73.04
8-J at 111, 16-P at 80   06/02/08   T-Mobile                  Check           $214.99
                                    Total:                                    $623.71

8-J at 59                01/02/08   Unknown                   Check            $612.00
8-J at 59                01/02/08   Unknown                   Check            $500.00
8-J at 59                01/02/08   Unknown                   Check            $544.00
8-J at 59                01/02/08   Unknown                   Check          $1,000.00
8-J at 59                01/02/08   Unknown                   Check            $500.00
8-J at 59                01/03/08   Unknown                   Check            $600.00
8-J at 59                01/03/08   Unknown                   Check          $1,500.00
8-J at 59                01/03/08   Unknown                   Check          $1,000.00
8-J at 59                01/03/08   Unknown                   Check            $500.00
8-J at 59                01/04/08   Unknown                   Check            $549.32
8-J at 59                01/04/08   Unknown                   Check            $628.24
8-J at 59                01/09/08   Unknown                   Check            $241.14
8-J at 59                01/11/08   Unknown                   Check             $20.00
8-J at 59                01/15/08   Unknown                   Check            $500.00
8-J at 64                01/16/08   Unknown                   Check            $300.00
8-J at 64                01/16/08   Unknown                   Check            $500.00
8-J at 64                01/17/08   Unknown                   Check             $60.07
8-J at 64                01/18/08   Unknown                   Check             $19.21
8-J at 64                01/22/08   Unknown                   Check            $500.00
8-J at 64                01/25/08   Unknown                   Check             $16.04
8-J at 64                01/30/08   Unknown                   Check              $4.43
8-J at 64                02/05/08   Unknown                   Check          $1,500.00
8-J at 64                02/05/08   Unknown                   Check          $1,090.00
8-J at 64                02/05/08   Unknown                   Check          $1,090.00
8-J at 64                02/05/08   Unknown                   Check          $1,498.10
                            - 68 -

[*68]
8-J at 64    02/06/08   Unknown      Check     $664.00
8-J at 64    02/06/08   Unknown      Check     $855.00
8-J at 64    02/11/08   Unknown      Check     $189.44
8-J at 64    02/11/08   Unknown      Check     $120.00
8-J at 64    02/12/08   Unknown      Check     $200.00
8-J at 64    02/12/08   Unknown      Check      $20.00
8-J at 64    02/14/08   Unknown      Check      $60.07
8-J at 64    02/15/08   Unknown      Check      $12.73
8-J at 73    02/19/08   Unknown      Check       $7.10
8-J at 73    03/03/08   Unknown      Check   $2,000.00
8-J at 73    03/06/08   Unknown      Check     $432.99
8-J at 73    03/13/08   Unknown      Check      $59.27
8-J at 73    03/13/08   Unknown      Check      $11.68
8-J at 73    03/13/08   Unknown      Check   $1,500.00
8-J at 73    03/13/08   Unknown      Check   $1,500.00
8-J at 73    03/14/08   Unknown      Check      $12.73
8-J at 81    03/24/08   Unknown      Check   $2,000.00
8-J at 81    03/31/08   Unknown      Check   $1,000.00
8-J at 81    04/04/08   Unknown      Check     $230.00
8-J at 81    04/07/08   Unknown      Check      $72.09
8-J at 81    04/09/08   Unknown      Check      $14.01
8-J at 81    04/11/08   Unknown      Check      $63.77
8-J at 81    04/14/08   Unknown      Check      $12.73
8-J at 96    04/17/08   Unknown      Check     $500.00
8-J at 96    04/18/08   Unknown      Check      $50.00
8-J at 96    04/18/08   Unknown      Check   $2,000.00
8-J at 96    04/25/08   Unknown      Check   $4,000.00
8-J at 96    04/25/08   Unknown      Check     $300.00
8-J at 96    04/29/08   Unknown      Check   $1,400.00
8-J at 96    05/02/08   Unknown      Check   $1,000.00
8-J at 96    05/08/08   Unknown      Check      $12.72
8-J at 111   05/19/08   Unknown      Check       $6.58
8-J at 111   05/22/08   Unknown      Check   $2,000.00
8-J at 111   05/30/08   Unknown      Check   $1,450.00
8-J at 111   06/02/08   Unknown      Check      $71.41
8-J at 111   06/05/08   Unknown      Check   $6,000.00
8-J at 111   06/20/08   Unknown      Check     $355.00
8-J at 128   06/23/08   Unknown      Check      $35.00
8-J at 128   07/09/08   Unknown      Check   $2,000.00
8-J at 135   07/24/08   Unknown      Check     $121.91
8-J at 135   07/24/08   Unknown      Check   $3,820.00
8-J at 135   07/24/08   Unknown      Check   $2,000.00
8-J at 135   07/30/08   Unknown      Check     $350.00
                                        - 69 -

[*69]
8-J at 135              08/01/08   Unknown            Check               $31.00
8-J at 135              08/05/08   Unknown            Check                $6.75
8-J at 135              08/11/08   Unknown            Check            $1,500.00
8-J at 135              08/12/08   Unknown            Check              $400.00
8-J at 135              08/12/08   Unknown            Check            $1,479.52
8-J at 135              08/13/08   Unknown            Check              $350.00
8-J at 149              09/02/08   Unknown            Check            $1,500.00
8-J at 149              09/03/08   Unknown            Check            $1,150.00
8-J at 149              09/03/08   Unknown            Check              $430.00
8-J at 149              09/04/08   Unknown            Check              $941.82
8-J at 149              09/12/08   Unknown            Check              $588.72
8-J at 149              09/17/08   Unknown            Check                $2.83
8-J at 149              09/18/08   Unknown            Check               $81.75
8-J at 149              09/19/08   Unknown            Check               $12.00
8-J at 161              11/03/08   Unknown            Check               $10.89
8-J at 161              11/07/08   Unknown            Check               $80.00
8-J at 170              11/24/08   Unknown            Check            $1,704.94
8-J at 170              11/24/08   Unknown            Check            $1,050.00
8-J at 169              12/04/08   Unknown            Check               $73.44
8-J at 169              12/05/08   Unknown            Check              $160.00
8-J at 169              12/12/08   Unknown            ???              $5,000.00
8-J at 169              12/15/08   Unknown            Check               $50.00
8-J at 184              12/24/08   Unknown            Check            $1,550.00
8-J at 184              12/29/08   Unknown            Check              $100.00
8-J at 184              12/30/08   Unknown            Check              $321.66
8-J at 184              12/30/08   Unknown            Check              $100.00
                                   Total:                             $72,458.10

8-J at 65, 16-P at 75   01/17/08   Verizon Wireless   Direct Debit      $234.41
8-J at 97, 16-P at 79   05/02/08   Verizon Wireless   Check             $140.89
8-J at 161              10/24/08   Verizon Wireless   Direct Debit       $96.83
8-J at 170              12/01/08   Verizon Wireless   Direct Debit       $93.57
                                   Total:                               $565.70

                                   GRAND TOTAL:                      $838,778.24
                                          - 70 -

[*70]                                 APPENDIX D

                              Account 5289 Debits By Payee

   Record Citation         Pay Date                Payee     Transfer   Amount Out

                                                              Type
11-J at 242, 12-J at 326 03/18/08      Account 0349        Check            $5,000.00
11-J at 246, 12-J at 327 04/03/08      Account 0349        Check           $20,000.00
11-J at 256, 12-J at 328 05/09/08      Account 0349        Check          $300,000.00
11-J at 305              12/02/08      Account 0349        Wire            $10,000.00
11-J at 305              12/08/08      Account 0349        Wire            $10,000.00
11-J at 305              12/18/08      Account 0349        Wire             $5,000.00
                                       Total:                             $350,000.00

11-J at 242, 12-J at 323,03/20/08      Artmonde LLC        Check          $100,000.00
16-P at 18
                                       Total:                             $100,000.00

11-J at 256, 12-J at 324 05/28/08      Artnouveau          Check          $250,000.00
                                       Total:                             $250,000.00

11-J at 230, 12-J at 310,02/01/08      Cash                Check           $10,000.00
16-P at 5
11-J at 230, 12-J at 311,02/01/08      Cash                Check           $20,000.00
16-P at 6
11-J at 230, 12-J at 312,02/13/08      Cash                Check            $9,000.00
16-P at 7
11-J at 242, 12-J at 322,03/10/08      Cash for Wire       Check          $180,000.00
16-P at 19
11-J at 246, 12-J at 314,04/30/08      Cash                Check            $5,000.00
16-P at 9
11-J at 285, 12-J at 315,08/11/08      Cash                Check            $8,000.00
16-P at 10
11-J at 285, 12-J at 316,08/11/08      Cash for Wire       Check           $26,000.00
16-P at 11
11-J at 288, 12-J at 317,09/05/08      Cash                W/D              $6,000.00
16-P at 12, 23
11-J at 298, 12-J at 318,10/24/08      Cash                W/D              $8,000.00
16-P at 13
11-J at 298, 12-J at 325 10/24/08      Cash                W/D            $100,000.00
                                       Total:                             $372,000.00
                                         - 71 -

[*71]

11-J at 230               02/08/08   Chase Auto       Check            $1,977.76
                                     Total:                            $1,977.76

11-J at 226               01/31/08   Credit Card      Direct Debit     $3,234.36
11-J at 230, 16-P at 15   02/07/08   Credit Card      Direct Debit    $20,000.00
11-J at 231               02/29/08   Credit Card      Direct Debit    $10,488.92
11-J at 242               03/21/08   Credit Card      Direct Debit     $5,423.09
11-J at 246, 16-P at 16   04/22/08   Credit Card      Direct Debit    $14,000.00
11-J at 288               09/26/08   Credit Card      Direct Debit    $10,421.47
11-J at 302               11/18/08   Credit Card      Direct Debit    $10,000.00
11-J at 305               12/04/08   Credit Card      Direct Debit     $5,000.00
                                     Total:                           $78,567.84

11-J at 226, 12-J at 309, 01/08/08   Doo Young Choi   Check           $30,000.00
16-P at 4
11-J at 230, 12-J at 313, 02/20/08   Doo Young Choi   Check           $85,000.00
16-P at 8
                                     Total:                          $115,000.00

11-J at 302, 12-J at 319, 11/07/08   Hanmi Bank       Check           $15,000.00
16-P at 14
                                     Total:                           $15,000.00

11-J at 288, 12-J at 331, 09/05/08   Hyo Sang Kim     Wire             $3,841.33
16-P at 22, 26
                                     Total:                            $3,841.33

11-J at 288, 12-J at 329, 09/05/08   Kwang Ja Yoo     Wire             $9,518.00
16-P at 22, 24
                                     Total:                            $9,518.00

11-J at 246, 12-J at 320, 04/16/08   Richard Suh      Check            $5,000.00
16-P at 17
                                     Total:                            $5,000.00

11-J at 230               02/05/08   Unknown          Check              $872.00
11-J at 230               02/05/08   Unknown          Check              $135.00
11-J at 230               02/07/08   Unknown          Check              $628.24
11-J at 230               02/07/08   Unknown          Check              $549.32
                                     Total:                            $2,184.56
                                         - 72 -

[*72]

11-J at 288, 12-J at 330, 09/05/08   Young Ran Lee   Wire      $3,618.00
16-P at 22, 25
                                     Total:                    $3,618.00

                                     GRAND TOTAL:           $1,306,707.49
