Pechenyuk v. Dept. of Rev.

DECISION TC-MD 240428R 1
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
VERA V. PECHENYUK,
and VITALIY N. PECHENYUK,
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Plaintiffs, TC-MD 240428R
v.
DEPARTMENT OF REVENUE,
State of Oregon,
DECISION	Defendant.
Plaintiffs appealed Defendant’s Notice of Deficiency Assessment, dated April 26, 2024,
for the 2019 tax year. A trial was held on May 14, 2025, in the courtroom of the Oregon Tax
Court. There were no appearances on behalf of Plaintiffs. Lisa Erickson (Erickson), auditor,
appeared and testified on behalf of Defendant. Defendant’s Exhibits A to D were received into
evidence.
I. PROCEDURAL BACKGROUND
Plaintiffs filed their Complaint with this court on May 28, 2024. Trial was originally
scheduled for January 23, 2025. The deadline for trial exhibits was either a postmarked copy by
January 9, 2025, or delivered by January 13, 2025. Plaintiffs did not submit exhibits via either
method by the deadline. On January 22, 2025, Plaintiffs filed a request to reset the trial due to
illness, which was granted. On January 24, 2025, the court issued an Order to Show Cause
Whether the Case Should be Dismissed for Plaintiffs’ failure to submit trial exhibits by the
court’s deadline. On February 10, 2025, Plaintiffs filed a letter stating that they assumed the
court already had all the necessary documents. On February 28, 2025, a case management
hearing was held where Plaintiffs were reminded that the court did not have Plaintiffs’

DECISION TC-MD 240428R 2
documents, and the court would only consider documents submitted by the parties as exhibits.
The parties agreed to re-schedule trial for May 14, 2025, at 9:00 a.m., in the courtroom of the
Oregon Tax Court. The parties also agreed that trial exhibits were to be postmarked by April 30,
2025, or delivered to all parties and the court by May 5, 2025. On February 28, 2025, the court
mailed Plaintiffs a notice for the trial date including the exhibit exchange and filing deadlines.
Plaintiffs did not appear for trial on May 14, 2025. However, Defendant indicated that it
made adjustments in favor of Plaintiffs, and thus the court proceeded to trial pursuant to Tax
Court Rule 58 E which states: “When a party who has filed an appearance fails to appear for
trial, the court may, in its discretion, proceed to trial and judgment without further notice to the
non-appearing party.”1
II. STATEMENT OF FACTS
Defendant audited Plaintiffs’ 2019 tax return and, after performing a bank deposit
analysis, made adjustments increasing their Schedule C gross receipts by $28,428, increasing
other income by $11,762, and reducing their Schedule C deductions by $46.170. Defendant
increased Plaintiffs’ self-employment tax deduction proportionate to their income and expense
changes, eliminating their earned income credit, and imposing a substantial understatement
penalty. (Def’s Ex B.)
Erickson testified that she reviewed the original auditor’s bank deposit analysis and found
the Schedule C gross receipts should be reduced by $16,256 and their unidentified deposits,
treated as other income, should be increased by $8,395. (Def’s Ex D at 1.) This change reduced
Plaintiffs’ gross income by $7,861.
1 The Preface to the Tax Court Rule-Magistrate Division states, in pertinent part, that “[i]f circumstances
arise that are not covered by a Magistrate Division rule, the rules of the Regular Division may be used as a guide to
the extent relevant.”

DECISION TC-MD 240428R 3
Based on this adjustment, Defendant determined there are proportionate reductions to
Plaintiffs’ self-employment tax deduction and understatement penalty.
III. ANALYSIS
The adjudication of Oregon income tax cases relies on several core principles of the
state’s income tax framework. First, Oregon’s personal income tax law is intended to be
identical in effect to the federal Internal Revenue Code (IRC) for determining an individual’s
taxable income. ORS 316.007.2 Second, in cases before the Tax 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. Third, allowable deductions from taxable income are a “matter of
legislative grace” and the burden of 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).
“Gross income” is defined as “all income from whatever source derived * * *.” IRC §
61(a). Defendant may establish the existence of unreported income “by any practical method
available in the circumstances of the particular situation.” Flowers v. Dept. of Rev., 16 OTR–
MD 151, 153 (1999) (citing U.S. v. Doyle, 234 F2d 788, 793 (7th Cir 1956)). A reasonable
reconstruction of income, such as a bank deposit analysis, while not conclusive as to the amount
of income, is accepted as correct unless proven otherwise. Ottuso v. Comm’r, TCM (RIA) 2024-
091, 2024 WL 4298072 (2024).
Plaintiffs did not appear for trial or submit any exhibits. The only evidence presented
was Erickson’s testimony that she reexamined the original auditor’s bank deposit analysis and
concluded that a reduction of gross income was warranted. The court accepts Defendant’s
evidence.
2 The court’s references to the Oregon Revised Statutes (ORS) are to the 2017 version.

DECISION TC-MD 240428R 4
IV. CONCLUSION
After careful review, the court finds that Plaintiffs did not provide any evidence in
support of their appeal, while Defendant presented evidence supporting their adjustments. Now,
therefore,
IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal for the 2019 tax year is
denied, with the exception of the adjustments offered by Defendant at trial in Plaintiffs’ favor.
Plaintiffs’ gross income, determined in the April 26, 2024, Notice of Assessment, is reduced by
$7,861, and Defendant shall adjust Plaintiffs’ self-employment tax deduction and understatement
penalty accordingly.
RICHARD D. DAVIS
MAGISTRATE
If you want to appeal this Decision, file a complaint in the Regular Division of
the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
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 Davis and entered on May 21,
2025.