Sorry, no ooga-chaka goes with this one, but Blue Swede’s 1974 one-hit wonder gives the keynote for Mark Chernomordikov, T. C. Memo. 2025-128, filed 12/15/25.

It’s a story we’ve often heard. Son takes over immigrant Dad’s business. Dad dealt with compatriots in green, no invoices among friends (“That’s how we did it in the Old Country”), and nobody keeps books. Son falls in among some bad actors (an EA who was investigated for tax fraud and was paid a piece of the tax savings, a Circular 230 no-no first class), gets involved in a number of businesses, and you know the rest. His Dad’s business was a C Corp. but father and son felt it was all their own.

Son ran the business like a Sched C. Bank deposit reconstruction followed.

“Petitioners argue that the bank accounts were [C Corp]’s, not petitioners’, and [C Corp] was not owned by Mr. Chernomordikov. But we have found above that Mr. Chernomordikov ran the business, had control over the business bank accounts, and considered them no different from his personal accounts. At trial he testified that in [Years at Issue] he ‘didn’t really feel like there was a difference’ between [C Corp]’s bank accounts and his personal bank accounts. When questioned how ONY Sales paid him for his work in [Out Year], because he received no paycheck, he testified that he ‘used the money from [C Corp] for personal expenses.’ Mr. Chernomordikov’s admission directly contradicts petitioners’ argument that cash withdrawn from [C Corp] accounts should be considered cost of goods sold. It instead supports RA H’s characterization of Mr. Chernomordikov’s cash withdrawals from [C Corp] accounts as taxable income to the extent not otherwise explained.” T. C. Memo. 2025-128, at p. 13.

And then there’s COGS.

“Mr. Chernomordikov claimed that cost of goods sold reduced [C Corp]’s gross receipts for [Years at Issue] and therefore should reduce any income we attribute to him from his use of [C Corp]’s funds. He produced no documents to support his claim. His explanation that he\ was simply following the practice of his late stepfather and complying with suppliers’ requests to deal in cash cannot substitute for actual evidence. Nor can he hide behind purported reliance on an absent professional to maintain records of costs of goods sold any more than he can rely upon the absent professional’s advice to avoid tax on income in [C Corp]’s accounts that he used as his own. While he may have used some of the cash withdrawn for business expenses, he offered no proof beyond the amount that respondent already conceded. Our latitude to estimate amounts on the basis of testimony requires more support than petitioners have offered, especially when Mr. Chernomordikov admitted at trial that he used funds in [C Corp]’s accounts for his personal expenses.” T. C. Memo. 2025-128, at pp. 14-15 (footnote omitted, but see infra).

The omitted footnote says you can Cohanize COGS even though they aren’t deductions, but the petitioners didn’t argue that nor provide a basis to Cohanize.

IRS stiped away filing status. Neither Mark nor spouse filed anything for one Year at Issue, so they can’t claim MFJ. Except the Stip of Settled Issues says they can. Except IRS now says no in Post-Trial Brief. Judge Cary Douglas (“C-Doug”) Pugh says “you stiped, you’re bound.” Mark and spouse married during that Year at Issue in CA. That’s a community property State, but counsel failed to raise any community property election issues, so they’re both on the hook.

As to chops, petitioners try Jarkesy, but on the same day that Riddle Aggregates is published that doesn’t go anywhere. Fraudulent failure to file fails when the EA who supposedly advised Mark is available but not called by either side. Judge C-Doug Pugh advises wiseguys not to try that tactic; see T. C. 2025-128, at p. 19, footnote 19. Mark gets hit with most of the rest.

One personal note: I was called to consult with a CPA in an ethnic enclave on this Minor Outlying Island. The prospective client (whom I elected not to represent) also dealt in cash with suppliers of like ethnicity. The prospective client needed to find a quarter-million dollars in COGS, and none of his compatriots was willing to write down his (it was definitely “his” in this community) telephone number. I walked downstairs from the CPA’s office and resisted the temptation to stop for lunch.