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We review the economic realities of transactions between
family members with heightened scrutiny. See Estate of Reynolds
v. Commissioner, 55 T.C. 172, 201 (1970). “The presumption is
that a transfer between closely related parties is a gift.” Id.
Petitioner has not overcome this presumption. Apart from
petitioner’s own self-serving testimony, there are no indicia of
an underlying, legally enforceable indebtedness between
petitioner and his mother. See Christensen v. Commissioner, 40
T.C. 563 (1963). Indeed, petitioner did not even show the amount
of the loan. Furthermore, even if we were to assume arguendo
that there was bona fide indebtedness between petitioner and his
mother, he has failed to establish that any interest paid was
properly allocable to a trade or business or met any of the other
exceptions to the statutory rule disallowing deductions for
personal interest. See sec. 163(h).
Petitioner is not entitled to the claimed deductions for
alleged interest payments to his mother.
B. Civil Fraud Penalty
If any part of any underpayment of a tax required to be
shown on a return is due to fraud, there is an addition to tax of
75 percent of the portion of the underpayment that is
attributable to fraud. See sec. 6663(a).
Respondent must prove fraud by clear and convincing
evidence. See sec. 7454(a); Rule 142(b). Fraud is the
intentional wrongdoing of a taxpayer to evade tax believed to be
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