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However, petitioner credibly testified that, when Mr. Zargari was
preparing the loan application, petitioner believed the loan
application was asking for the “net rental value”, or the amount
petitioner would have received had he rented out the property.
In addition, petitioner credibly testified that his parents were
living in the Los Angeles condominium, he did not charge his
parents rent, and he did not receive any rent.
Respondent argues that we do not have to accept petitioner’s
self-serving testimony, citing Mendes v. Commissioner, 121 T.C.
308 (2003). In Mendes, the taxpayer was contesting a 10-percent
additional tax on an early distribution from a qualified
retirement plan imposed under section 72(t). Id. at 319-320.
The taxpayer argued that a bank had previously withheld the 10-
percent additional tax but offered no documentation to verify his
testimony. Id. The Court held that it did not have to rely on
the taxpayer’s self-serving testimony when he failed to present
other evidence that the 10-percent additional tax was previously
withheld.
Unlike the taxpayer in Mendes, petitioner is asserting that
he never received income. We recognize the inherent difficulty
in proving a negative, and because we find petitioner’s testimony
to be credible and his explanation of the loan application
persuasive, we accept petitioner’s testimony.
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