E. Kahl v. Dept. of Rev.

DECISION TC-MD 230010R 1 of 16
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
EDWARD KAHL, )
)
)
)
)
)
)
)
)
)
Plaintiff, TC-MD 230010R
v.
DEPARTMENT OF REVENUE,
State of Oregon,
DECISION	Defendant.
Plaintiff appealed Defendant’s Notice of Deficiency Assessment dated October 12, 2022,
for the 2015 tax year (Notice of Assessment). Defendant submitted a cross-claim, asking for
additional tax, penalty, and interest greater than the amounts shown in the Notice of Assessment.
(Def’s Mot at 3.)
Based on some common business ownership interests, a joint trial was held with Nidal
Kahl and Panayiota Kahl v. Department of Revenue, TC-MD 230009R, and Daniel Kahl v.
Department of Revenue, TC-MD 230011R. Trial was held in the courtroom of the Oregon Tax
Court from January 27, 2025, through January 31, 2025, and on February 5, 2025. An additional
trial date for Daniel Kahl was held remotely on May 20, 2025.
Hertsel Shadian, Attorney at Law, represented Nidal and Panayiota Kahl, and co-
represented Daniel Kahl. Shawn Bargouti (Bargouti), Certified Public Accountant, represented
Plaintiff and co-represented Daniel Kahl.1 Plaintiff and Bargouti testified on behalf of Plaintiff.
Plaintiffs also called Defendant’s auditor, Michelle Warren (Warren), as an adverse witness.
Patrick Rieder and Sam Zeigler, Assistant Attorneys General, represented Defendant and called
1 In this Decision, Plaintiff used singularly refers to Edward Kahl, and Plaintiffs used plurally refers to
Edward Kahl, Nidal Kahl, Panayiota Kahl, and Daniel Kahl.

DECISION TC-MD 230010R 2 of 16
Warren as a witness. Plaintiffs’ Exhibits PE 1 to PE 3763 and PR 1 to PR 13 were admitted into
evidence.
Defendant’s Exhibits DE 1 to DE 3294 and DR 1 to DR 19 were admitted into evidence.
Per stipulation of the parties, the court will not consider the additional commentary contained in
the rebuttal exhibits and will only focus on the numbers contained therein.
I. INTRODUCTION
These consolidated appeals arise from related business activities involving members of
the Kahl family. Although the cases were tried together due to overlapping ownership interests
and shared evidentiary issues, this appeal concerns a narrower set of activities attributable to
Plaintiff and the two businesses in which he held a majority ownership interest. Plaintiff’s
interests in certain of the other business entities at issue in the consolidated cases were more
limited than that of other related taxpayers, so evidence presented on those businesses is found in
Nidal Kahl and Panayiota Kahl v. Department of Revenue, TC-MD 230009R.
The court encountered the same fundamental difficulties across the consolidated matters:
Plaintiffs’ books and records were incomplete, disorganized, and, in many instances,
reconstructed after-the-fact. Given those conditions, the court relies on the representatives’
exhibits and testimony to evaluate the claimed income and expenses, rather than attempting to
catalogue each document individually.
Prior to trial, the court determined that Defendant’s spreadsheets would serve as the
foundational reference materials for the evidentiary phase of the proceedings. Accordingly, the
court conditioned the admission of Plaintiffs’ exhibits on the use of those spreadsheets as the
analytical baseline for organizing the evidence.2
2 The court conditioned admittance of Plaintiffs’ exhibits pursuant to ORS 305.501(4) (statutory or
technical rules of evidence are not required in the Magistrate Division) and Reed v. Dept. of Rev., 310 Or 260, 270,

DECISION TC-MD 230010R 3 of 16
II. STATEMENT OF FACTS
This case involves the income and expenses of Plaintiff’s two businesses: Dancing Zorba
and EdTel Networks (EdTel).3 The facts and circumstances surrounding the income and
expenses for each business are distinct and require separate analysis. Kahl holds a bachelor’s
degree in communications with an emphasis in Information Systems and Quantitative Analysis.
He subsequently completed a master’s degree in organizational management.
Following his education, Kahl worked in telecommunications consulting, including
engagements with large corporate clients. He further advanced to roles involving business
intelligence, systems automation, and cross-functional technical analysis.
A. Dancing Zorba
Dancing Zorba is a festival-based food service enterprise that operated as a recurring
vendor at regional events, including Taste of Tacoma, Bite of Seattle, and Bumbershoot.
Dancing Zorba operated multiple booths at festival events, including booths serving Greek and
Mediterranean foods, as well as separate seafood-focused booths operating under the names
“Seattle Seafood Company” and “Eduardo’s Famous Fish Tacos.” Festival operations required
mid-week travel for setup, transporting equipment, staging product deliveries, meeting
regulatory requirements, and configuring refrigeration and propane systems. Plaintiff testified
that each festival ran for three days and required substantial labor and operational effort
throughout.
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798 P2d 235 (1990) (Peterson, J., concurring) (the Tax Court can require a taxpayer “to put the evidence into some
minimally coherent form before” its admission).
3 Plaintiff owns a 70 percent interest in Dancing Zorba and a 100 percent interest in EdTel. (See DE 871,
2634, 2636.)

DECISION TC-MD 230010R 4 of 16
Festival booths were staffed by temporary labor, often students from the University of
Washington, who assisted with food preparation, cooking, cashiering, and supply management.
Festival labor was paid exclusively in cash, and Plaintiff described maintaining a handwritten
notebook listing the names and hours of temporary workers, who were typically paid at the end
of each festival day or at the close of the weekend. Plaintiff did not produce this notebook at
trial.
Plaintiff testified that Dancing Zorba conducted much of its business in cash and that his
attempt to use an internet payment processing platform, Square, did not work efficiently. He did
not deposit all cash proceeds from festival events into the business account immediately, instead
retaining cash in the till to pay expenses as they came due. Bank records for the Dancing Zorba
account reflect deposits of $8,320 in June 2015 (PE 1294); $23,500 in July 2015 (PE 1299);
$7,040 in August 2015 (PE 1302); and $6,000 in September 2015. (PE 1304.) The account also
reflects a deposit of $2,846.30 in October 2015. (PE 1307.)
Plaintiff testified that primary food distributors, including Alexis Foods and Pacific
Seafood, were commonly paid in cash, often on short payment terms immediately following each
festival. He further testified that on-site purchases during festivals, including ice, produce,
propane, emergency supplies, and water service fees were also paid in cash because such
purchases were made quickly and frequently during high-volume periods.
Plaintiff reported cost of goods sold totaling $39,680.26 and produced receipts and
related documents, some of which include handwritten notations or signatures indicating
payment. (See PE 1313-1328.) He also reported additional expenses totaling $3,845.80 (PE
1333) and produced supporting receipts. (PE 1334-1370.)
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DECISION TC-MD 230010R 5 of 16
Plaintiff reported festival expenses, including fees and permits, totaling $17,123.70. (PE
1371.) He testified that certain festivals required payment of a percentage of gross sales, in
addition to fixed booth charges, and that these percentage-based fees—typically around 15-16
percent—were customarily paid in cash directly to the festival operator. No evidence was
presented to substantiate the payment of such fees or the basis for their calculation. Plaintiff
further testified that his timely and honest cash settlement of these fees was an important factor
in how he secured invitations to subsequent events.
B. EdTel
EdTel is a consulting business that Plaintiff formed in 2006 to provide
telecommunications and data-related services to corporate clients. During the tax year at issue,
he performed project-based work for clients including Time Warner and ACN, which required
extensive out-of-state travel and the delivery of technical and analytical services involving data
systems and reporting.
Plaintiff testified that his consulting work involved travel typically following a pattern of
three weeks on-site and one week remote. His work regularly required travel to Washington,
D.C.; Dallas-Fort Worth, Texas; and Charlotte, North Carolina, with flights generally departing
on Sundays and returning on Thursday nights. Plaintiff also testified that he traveled through
Seattle for business development meetings due to longstanding industry relationships.
Plaintiff provided a subcontractor agreement between EdTel and Insys Group, Inc. dated
August 2015. (PE 1607-1615.) That agreement provided that Plaintiff might be entitled to
reimbursement for travel and business expenses. (PE 1608.) Plaintiff testified that he filed
electronic reports, including receipts, and was reimbursed for many travel-related expenses by
his clients. Plaintiff testified that gross deposits for work from his clients would necessarily have

DECISION TC-MD 230010R 6 of 16
included the reimbursements, which Defendant included in income. The record does not clearly
establish whether Plaintiff was reimbursed for any portion of his travel or related expenses, and
no documentation was provided to show how any such reimbursements were treated.
EdTel’s 2015 tax return reported $71,782 in travel expenses and $16,925 in Meals and
Entertainment (calculated at 50 percent of expenses incurred). (PE 2018.) Plaintiff provided
receipts for selected airfare but maintained no log detailing the business purpose for any trip.
For example, he submitted a receipt dated August 17, 2015, for $297.60, but there is no
indication of location or business purpose. (PE 1616.) He also provided a receipt dated August
20, 2015, for a flight from Charlotte, North Carolina, to Portland, Oregon, in the amount of
$382.00, which he testified was consistent with his four-day travel schedule. (PE 1617.)
However, no business purpose was indicated. Plaintiff provided numerous receipts for hotel,
rental car, and food expenses, but no log or other records explaining their business purpose. (PE
1619-1699.)
C. Testimony of Warren
Warren testified that she is a Manager I with the Oregon Department of Revenue and has
served as an auditor for approximately seventeen years. She became involved in this case as a
result of filing-enforcement leads received by Defendant. Warren testified that she was familiar
with the tax returns and supporting documentation provided for Plaintiff and the entities at
issue—EdTel and Dancing Zorba—and that she prepared multiple workbooks summarizing
Defendant’s analysis.
1. Dancing Zorba
With respect to Dancing Zorba, Warren explained that her understanding of the business
was based primarily on spreadsheets and receipts provided by Plaintiff. She understood Dancing

DECISION TC-MD 230010R 7 of 16
Zorba to be a food operation participating at large events in Washington, though she was
uncertain at first how many booths or food stations were involved because no complete books or
contemporaneous operational records were produced. She testified that Plaintiff’s oral testimony
at trial was the first clear assertion that more than two booths or food stations were operated
during the relevant festival periods.
Regarding the documentation provided by Plaintiff, Warren testified that she received a
set of spreadsheets that appeared to have been created after Plaintiff filed his tax return. She
noted that many of the amounts listed in those spreadsheets did not match the expenses claimed
on the filed return, and numerous categories from the return contained no supporting entries at
all. She testified that this mismatch indicated to her that the documents provided were
incomplete and were not contemporaneous books and records.
Warren also explained that many receipts included business names different from
Dancing Zorba, such as Park Place Café, Seattle Seafood Company, Pho Kit, and other unrelated
entities. She testified that Defendant had no information establishing how these entities related
to Plaintiff or whether the expenses listed on these receipts were for Dancing Zorba, another
business, or unrelated activities. She stated that Defendant requested clarification regarding
these discrepancies but received none.
Warren further testified that most expenses claimed for Dancing Zorba were paid in cash
and that Plaintiff provided no documentation linking those cash payments to reported income.
She stated that, for cash-based businesses, Defendant requires contemporaneous cash logs,
point-of-sale records, or other verifiable accounting records to confirm that the cash used to pay
expenses was actually part of reported income. She testified that Plaintiff supplied no daily sales
records, cash summaries, employee payroll logs, or other income-tracking documents and that

DECISION TC-MD 230010R 8 of 16
Defendant therefore could not verify whether the cash used to pay expenses was included in
Plaintiff’s income.
Concerning festival fees, Warren testified that she conducted independent research into
Bite of Seattle’s fee structure and learned that the festival typically charges vendors a
percentage-of-sales fee. She stated that Defendant received no records from Plaintiff showing
how Dancing Zorba reported, calculated, or paid any such percentage-based fees or whether
those fees corresponded to Plaintiff’s claimed sales or deposits.
Regarding Dancing Zorba’s reported income, Warren testified that Plaintiff reported
approximately $74,509 in total income on the return but that deposits into the Dancing Zorba
bank account totaled only about $48,000. (See also DE 2629; PE 1294, 1299, 1302, 1304,
1307.) She testified that without contemporaneous income records, such as daily sales logs,
Defendant could not verify Plaintiff’s claimed $108,263 in gross receipts or determine how much
of the cash used to pay expenses related to business income was actually earned during the
festival periods. (See also DE 2629.)
2. EdTel
With respect to EdTel, Warren testified that she received no detailed books or records for
income, expenses, or invoicing and that the only source of income verification available to her
was the bank-deposit analysis she prepared. She testified that Plaintiff provided no records
identifying contracts, invoices, receipts, or reimbursement statements linking deposits to specific
business activities for EdTel. She also testified that she had concerns that Plaintiff may have
deducted expenses for which he was reimbursed but that she could not verify this because no
reimbursement records or client invoices were provided.
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DECISION TC-MD 230010R 9 of 16
Warren testified that only one portion of EdTel’s travel expenses—those clearly tied to
Charlotte, North Carolina—could be confidently traced to an established client project and that
she allowed those amounts. She testified that other travel receipts lacked client identification,
itinerary information, or travel logs and that some flights or hotel stays were to cities unrelated to
any known EdTel client. She testified that such expenses could not be verified as
business-related under the strict substantiation rules.
Finally, Warren testified that she prepared a comprehensive summary workbook
reflecting all adjustments across entities and tax years. She testified that the summary reconciled
Plaintiff’s original returns, audit results, and conference-level review and was designed to show
how each adjustment flowed through to Plaintiff’s personal return. She testified that, based on
the incomplete books and lack of verifiable records, Defendant concluded that a substantial
portion of Plaintiff’s claimed deductions could not be substantiated and therefore were
disallowed. Relying on Warren’s spreadsheets, Defendant filed an Amended Answer, increasing
the amount sought from the Notice of Assessment.
III. ANALYSIS
Oregon defines taxable income in the same manner as the Internal Revenue Code (IRC),
subject to certain modifications not relevant here. ORS 316.007; ORS 316.022(6).4 Under IRC
section 162(a), a taxpayer may deduct ordinary and necessary expenses incurred in carrying on a
trade or business. Conversely, IRC section 262(a) generally disallows deductions for “personal,
living, or family expenses” not otherwise allowed under the IRC. Certain categories of business
expenses, including travel and use of passenger vehicles, are subject to heightened substantiation
requirements under IRC section 274(d). If a taxpayer fails to meet these requirements, the
4 The court’s references to the Oregon Revised Statutes (ORS) are to 2017.

DECISION TC-MD 230010R 10 of 16
deduction must be denied, regardless of whether the expense appears reasonable. Schladweiler
v. Comm’r, 80 TCM (CCH) 681 (2000), 2000 WL 1690282 at *3 (US Tax Ct), aff’d, 28 F Appx
602 (8th Cir 2002).
In cases before this court, the party seeking affirmative relief bears the burden of proof
and must establish their case by a “preponderance” of the evidence. ORS 305.427. This usually
applies to taxpayers/plaintiffs; however, when Defendant seeks to further deny deductions or
increase the assessment, as it is doing in this case, the burden of proof on that issue shifts to
Defendant. See Donohoe v. Dept. of Rev., TC-MD 150521N, 2016 WL 4446635 at *3 (Or Tax
M Div, Aug 23, 2016). Deductions are a “matter of legislative grace” and the burden of proof—
substantiation—is placed on the individual claiming the deduction. INDOPCO, Inc. v. Comm’r,
503 US 79, 84, 112 S Ct 1039, 117 L Ed 2d 226 (1992). Taxpayers are required to maintain
records sufficient to establish the amount of their deductions. See IRC § 6001; Treas Reg §
1.6001–1(a).
One theme of this case involves estimation of expenses under a rule articulated in Cohan
v. Comm’r, 39 F2d 540 (2nd Cir 1930). Under that doctrine, where a taxpayer establishes that
deductible expenses were incurred but cannot substantiate the precise amounts, the court may
approximate those expenses, bearing heavily against “the taxpayer whose inexactitude is of his
own making.” Id. at 544; see also Vanicek v. Comm’r, 85 TC 731, 742-43 (1985). However, the
Cohan rule is not a substitute for proof; the taxpayer must first provide a rational evidentiary
basis upon which estimates can be made. Williams v. U.S., 245 F2d 559, 560-61 (5th Cir 1957).
There are two businesses at issue in this case with very different analytical challenges.
Thus, the court will examine each business separately.
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DECISION TC-MD 230010R 11 of 16
A. Dancing Zorba
Dancing Zorba is a festival-based food service business operating at large events in
Washington. The primary challenges with respect to this business activity arise from Plaintiff’s
incomplete records, the predominance of cash transactions, and the absence of reliable
documentation tying cash receipts to expenditures.
Plaintiff’s position is that he reported approximately $108,000 in gross receipts from
festival operations and that those receipts necessarily required the incurrence of substantial
expenses, including labor, food costs, and supplies. He contends that, even if his recordkeeping
was incomplete, the receipts and other documentation provided—particularly those relating to
food purchases—establish a sufficient basis for the court to estimate expenses under the rule
articulated in Cohan. Plaintiff further argues that Defendant’s decision to deny most of the
purported business expenses—labor costs, cost of goods sold (the food), and supplies—is
unreasonable in light of his gross sales.
The court has no doubt that Plaintiff incurred costs of goods sold, labor, and related
operating expenses in conducting festival operations. However, the Cohan doctrine permits
estimation only where there is a reasonable evidentiary basis for doing so. See, e.g., Williams,
245 F2d at 560. Here, the absence of reliable records of cash receipts and disbursements
prevents the court from determining whether the claimed expenses were paid from reported
income or from unreported cash receipts, or whether they merely reflect the disposition of cash
already accounted for. Without that threshold information, there is no reliable basis upon which
to estimate expenses.
That limitation is particularly significant in the context of a cash-intensive business that
fails to maintain basic records of receipts and disbursements. In such circumstances, the absence

DECISION TC-MD 230010R 12 of 16
of reliable contemporaneous records not only obscures the amount of claimed expenses but also
prevents the court from determining whether those expenses were paid from business receipts
already reflected in reported income.
As the court observed in Petzoldt v. Comm’r, 92 TC 661, 689-90 (1989), where a
taxpayer’s records are inadequate or unreliable, the court may reconstruct income. However, the
court is not required to accept unsubstantiated estimates of expenses or to make allowances
without a reasonable evidentiary foundation. Id. Where the evidentiary record does not permit a
rational allocation, the court declines to apply the Cohan doctrine.
Here, the only evidence of gross income consists of Plaintiff’s testimony, which is not
corroborated by documentary evidence. Plaintiff’s business operated largely in cash, and the
record contains no contemporaneous cash logs, sales summaries, or reconciliations tying receipts
to deposits or expenditures. Plaintiff reported approximately $108,000 in gross cash receipts, yet
deposits into the Dancing Zorba bank account total less than half that amount, and those deposits
were made intermittently over several months rather than contemporaneously with festival
operations. Furthermore, Plaintiff did not deposit all receipts into his bank account and instead
used cash on hand to pay expenses.
As a result, the court is unable to determine whether the claimed expenses represent
amounts paid from reported income or merely reflect the use of cash receipts that were not
tracked or verified. The evidentiary gap precludes any reasonable approximation. Under these
circumstances, there is no rational evidentiary basis upon which to estimate expenses, and
application of the Cohan doctrine is not warranted.
The court next considers Plaintiff’s EdTel business, which presents a different analytical
framework. Unlike Dancing Zorba, where the issue was whether expenses could be estimated in

DECISION TC-MD 230010R 13 of 16
the absence of reliable records, the expenses at issue for EdTel are subject to the strict
substantiation requirements of IRC section 274(d), which require specific documentation and do
not permit estimation.
B. EdTel
IRC section 274(d) provides that travel, meals, and certain related expenses are subject to
strict substantiation requirements. The statute disallows any deduction unless the taxpayer
substantiates the amount, time, place, and business purpose of each expense by adequate records
or sufficient corroborating evidence. See also Treas Reg § 1.274-5T(b)(2). These requirements
leave no room for estimation, and courts have consistently held that the Cohan doctrine does not
apply to expenses governed by section 274(d). See Sanford v Comm’r, 50 TC 823, 827-28
(1968), aff’d sub nom, 412 F2d 201 (2nd Cir 1969). Thus, even where it is likely that a taxpayer
incurred travel expenses, deductions must be denied absent the required substantiation.
In this case, Plaintiff provided a limited number of receipts, primarily for airfare, but
failed to maintain contemporaneous travel logs, itineraries, or records establishing the business
purpose of the expenses or their relationship to specific clients or projects. Many receipts lack
identifying information tying the travel to business activity, and some relate to locations not
clearly connected to established client engagements. Without evidence establishing the required
elements—particularly business purpose and business relationship—the court cannot allow the
deductions.
Plaintiff provided a limited number of receipts for travel expenses that did not approach
the nearly $100,000 in travel-related expenses claimed on his return. He did not maintain any
log of business travel or of meals identifying the business purpose of the expense or the
individuals involved. Although Plaintiff credibly testified that he incurred travel expenses in the

DECISION TC-MD 230010R 14 of 16
course of his work, his records do not satisfy the substantiation requirements of IRC section
274(d). To the extent Defendant allowed certain travel expenses associated with travel to
Charlotte, North Carolina, those amounts will be allowed.
Plaintiff also testified that some travel expenses may have been reimbursed by his clients
and that such reimbursements were included in income. At the same time, he contends that the
related expenses were disallowed, effectively resulting in the inclusion of reimbursement income
without the corresponding deduction. However, he provided no documentation showing whether
reimbursements were received, in what amounts, or how they were treated. This lack of
evidence prevents the court from determining whether the disallowed expenses relate to
reimbursed or unreimbursed travel and further undermines the claimed deductions.
Accordingly, because Plaintiff has not met the strict substantiation requirements of IRC
section 274(d), the claimed travel expense deductions must be disallowed, except to the limited
extent already allowed by Defendant.
C. Defendant’s Cross-Claim
During the pre-trial phase of this case, Defendant amended its Answer to assert a cross-
claim based on information obtained during discovery to increase Plaintiff’s deficiency beyond
the Notice of Assessment. To the extent that the increased deficiency places the burden of proof
on Defendant, the court finds that Defendant has met that burden. Defendant’s reconstruction of
income and evaluation of claimed expenses—based on a bank deposit analysis, available records,
and the absence of support documentation—is set forth in multiple spreadsheets admitted into
evidence.
The court finds that Defendant’s analysis is grounded in a systematic review of available
records, including a bank deposit analysis, categorization of receipts, and reconciliation to the

DECISION TC-MD 230010R 15 of 16
filed returns. Defendant’s spreadsheets reflect a detailed effort to account for each documented
transaction and to incorporate the information provided by Plaintiff to the extent it could be
verified.
Although the reconstruction is necessarily imperfect due to the absence of complete and
contemporaneous records, those limitations are attributable to Plaintiff’s recordkeeping rather
than any deficiency in Defendant’s methodology. In contrast to Plaintiff’s largely
uncorroborated assertions, Defendant’s analysis provides the most reliable measure of income
and allowable expenses in the record. Accordingly, the court concludes that Defendant has
established the increased deficiency by a preponderance of the evidence.
IV. CONCLUSION
After careful consideration, the court concludes that Plaintiff has not met his burden of
substantiating the claimed business expense deductions for either Dancing Zorba nor EdTel.
With respect to Dancing Zorba, the absence of reliable records of cash receipts and
disbursements precludes application of the Cohan doctrine. With respect to EdTel, Plaintiff
failed to satisfy the strict substantiation requirements of IRC section 274(d). The court further
concludes that Defendant has met its burden with respect to the increased deficiency asserted in
its cross-claim. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is denied.
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DECISION TC-MD 230010R 16 of 16
IT IS FURTHER THE DECISION OF THIS COURT that Defendant’s cross-claim to
increase the deficiency is granted.
RICHARD D. DAVIS
MAGISTRATE
To appeal this Decision, file a complaint in the Regular Division of the Oregon
Tax Court. Appeals are accepted by electronic filing; by mail at 1163 State
Street, Salem, OR 97301-2563; and by hand delivery to 1241 State Street, Salem,
OR, Floor 4R.
Your complaint must be submitted within 60 days after the date of this Decision
or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Richard D. Davis and entered on July
2, 2026.