Khalaf v. Dept. of Rev. ( 2021 )

563
Submitted on the briefs May 5, judgment of Tax Court affirmed
September 30, 2021
Rami KHALAF,
Plaintiff-Appellant,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Defendant-Respondent.
(TC 5347) (SC S067721)
495 P3d 1258
Taxpayer was in the business of buying products for customers in the United
Arab Emirates, primarily all-terrain vehicles. He sought to claim certain busi-
ness deductions on his 2013 income tax return, including depreciation for a dune
buggy that taxpayer had purchased for use as a demonstration model, and a
business expense deduction for payments made to his sisters to rent an apart-
ment and auto for his trips to Dubai. The Department of Revenue (department)
rejected those deductions. The Tax Court agreed with the department, holding
that the dune buggy was not deductible because it counted as inventory, and
that the travel expenses were not deductible, both because they were not suffi-
ciently documented as travel expenses and because taxpayer had failed to rebut
the presumption that they were nondeductible gifts to family members. Taxpayer
appealed to the Oregon Supreme Court. Held: (1) In reviewing whether a Tax
Court’s finding of fact is supported by “substantial evidence,” the Supreme Court
considers whether the record, viewed as a whole, would permit a reasonable per-
son to make that finding; (2) the Tax Court’s determination that the dune buggy
was inventory, and hence not depreciable, was a finding of fact supported by sub-
stantial evidence; and (3) the Tax Court’s determination that taxpayer had failed
to rebut the presumption of a gift to his sisters was a finding of fact supported
by substantial evidence, and so the transfers could not be deducted as a business
expense.
The judgment of the Tax Court is affirmed.
En Banc
On appeal from the Oregon Tax Court.*
Robert T. Manicke, Judge.
Rami Khalaf filed the brief pro se.
______________
* Unpublished decision issued February 5, 2020.
564 Khalaf v. Dept. of Rev.
Erin K. Galli, Assistant Attorney General, Salem, filed
the brief for respondent. Also on the brief were Ellen F.
Rosenblum, Attorney General; Benjamin Gutman, Solicitor
General; and Kristen Gallino, Assistant Attorney General.
NELSON, J.
The judgment of the Tax Court is affirmed.
Cite as 368 Or 563 (2021) 565
NELSON, J.
Rami Khalaf (taxpayer) was in the business of buy-
ing products for customers in the United Arab Emirates,
primarily all-terrain vehicles (ATVs). He sought to claim
certain business deductions on his 2013 income tax return.
As relevant here, those included travel expenses that tax-
payer had incurred on trips to the Emirates, and the cost
of a dune buggy that taxpayer had purchased for use as a
demonstration model. The Department of Revenue (depart-
ment) rejected those deductions. The Tax Court agreed
with the department on those points: It held that the travel
expenses were not deductible, because they were not suf-
ficiently documented, and that the dune buggy was not
deductible because it counted as inventory. Khalaf v. Dept. of
Rev., TC 5347 (Or Tax, Feb 5, 2020). Taxpayer has appealed.
We affirm.
I. FACTS
A. General
Taxpayer operated a sole proprietorship under the
business name “Khalaf Motors.” Taxpayer’s business was
“facilitating” sales between businesses in the United States
and customers in the Emirates. In general, an Emirates
customer would contact taxpayer seeking a particular item.
Taxpayer would locate the item and negotiate the purchase
price, including shipping. The customer would wire funds
for purchase, and then taxpayer would ship the item. The
primary sale items were ATVs—often referred to as dune
buggies.
From this point, we will separately set out the rel-
evant facts as to the two claimed deductions, and the Tax
Court’s rulings on each claim.
B. Dune Buggy
In 2013, taxpayer purchased a dune buggy like the
ones he was selling to his customers in the Emirates. That
dune buggy was intended to be a “prototype and demonstra-
tion unit” to stimulate his sales. Taxpayer used the dune
buggy for advertising purposes, and he deliberately kept the
mileage low. Later, taxpayer unsuccessfully tried to sell the
dune buggy on Craigslist.
566 Khalaf v. Dept. of Rev.
In his 2013 tax return, taxpayer claimed a deduction
of $7,280 in depreciation on that dune buggy. The depart-
ment denied the deduction on the ground that it was a demo/
floor model, and thus inventory, which was not depreciable.
Taxpayer challenged the department’s denial before
the Tax Court. The court agreed with the department and
concluded that the vehicle was not a depreciable business
asset. Inventory, the court explained, does not qualify for a
depreciation deduction. Whether an asset is inventory is a
factual question on which taxpayer had the burden of proof.
Demonstration units are generally inventory and not depre-
ciable. If, however, the dune buggy was being consumed
through use in such business activities as transportation, it
would be depreciable.
In this case, the court found that the dune buggy
constituted inventory. As noted, taxpayer had admitted that
it was a demonstration model, that he had kept the mileage
low, and that he had later attempted to sell it. Conversely,
taxpayer did not show that the dune buggy was being con-
sumed for business purposes (other than as a demonstrator).
The Tax Court also rejected taxpayer’s alternative
argument that the dune buggy was depreciable as a proto-
type for research and development. Pursuant to an Internal
Revenue Service Treasury Regulation, 26 CFR § 1.174-2(a)(6),
“experimental expenditures” excludes expenditures for
“[a]dvertising or promotions.” As noted, taxpayer had tes-
tified that he had bought the dune buggy for promotional
purposes and used it for those purposes.
C. Business Trips to Emirates
Taxpayer traveled to the Emirates three times in
2013: on or about January 1 to 8; April 10 to May 15; and
August 7 to 18.1 The only travel expenses at issue are pay-
ments that taxpayer had made to his sisters related to that
1
On appeal, the department appears to assert that there were only two trips.
Our review of the trial transcript, however, shows that the department had con-
ceded that taxpayer made three trips to the Emirates in 2013 and on the dates
that taxpayer had claimed. Regardless, neither the exact number of trips nor
their dates are necessary to our disposition here.
Cite as 368 Or 563 (2021) 567
travel.2 Specifically, taxpayer claimed a $7,000 deduction for
a payment that he allegedly made to rent a vehicle from one
sister, and $3,150 for a payment that he allegedly made to
rent an apartment in Dubai from another sister.
The department denied the deductions. It did not
dispute that taxpayer paid his sisters those amounts in
2013. However, the department concluded that taxpayer had
failed to show that those payments were primarily for busi-
ness purposes.
The Tax Court also agreed with the department on
that point. Noting that taxpayer has the burden of proof, the
court explained that a taxpayer is not permitted to claim a
deduction based only on his or her own testimony. The tax-
payer must substantiate the deduction with additional evi-
dence: specifically, detailed and contemporaneous records.
The Tax Court then turned to the substantiating
evidence submitted by taxpayer. As an initial matter, the
court excluded from the evidence two receipts that taxpayer
had offered from his sisters (originals in Arabic and with
English translations). The receipts stated that the payments
were for taxpayer’s business. The court concluded that the
receipts were hearsay and not subject to an exception.
The court then concluded that the remaining evi-
dence was insufficient. Taxpayer’s travel log failed to show
that the entries had been made at the time the expenses
were incurred. Taxpayer failed to introduce any evidence to
corroborate his claim that the apartment was used for busi-
ness purposes, and he did not keep a mileage log document-
ing his use of the vehicle. The copies of the apartment lease
and the rental contract, the court concluded, were insuffi-
cient to substantiate his testimony.
Finally, the Tax Court held in the alternative that
taxpayer had faced an independent evidentiary burden,
because he had made the payments to his sisters. As pay-
ments to family members, the court explained, the transfers
were presumed to be nondeductible gifts. Taxpayer had not
submitted any evidence to show that the amounts that he
2
There were no issues regarding other travel expenses to the Emirates
before the Tax Court.
568 Khalaf v. Dept. of Rev.
had paid his sisters represented fair market value for the
car or the apartment.
II. DISCUSSION
A. Burden of Proof; Standard of Review
In the Tax Court, taxpayer—as the party chal-
lenging the department’s ruling—had the burden to show,
by a preponderance of the evidence, that he was entitled
to the deduction he claimed. See ORS 305.427 (both before
Tax Court and on appeal, “the party seeking affirmative
relief” has burden of proof by “a preponderance of the evi-
dence”); Baisch v. Dept. of Rev., 316 Or 203, 211, 850 P2d
1109 (1993) (“A taxpayer seeking relief from a decision of the
Department denying a deduction bears the burden of show-
ing by a preponderance of the evidence that the deduction is
allowable.”).
We review the Tax Court’s findings to determine
whether they are supported by substantial evidence. ORS
305.445 provides that this court’s review of a Tax Court
decision “shall be limited to * * * lack of substantial evidence
in the record to support the tax court’s decision or order.” We
pause briefly to explain that standard.
Although this court has not previously addressed
the meaning of “substantial evidence” in the context of Tax
Court review, it is a term of art drawn from administra-
tive law. “Substantial evidence” was first applied to Tax
Court review by the legislature in 1995, replacing the prior
functional directive that this court would review the facts
de novo. Or Laws 1995, ch 650, § 25; see Delta Air Lines,
Inc. v. Dept. of Rev., 328 Or 596, 600-01, 984 P2d 836 (1999)
(discussing prior standard and change in law). In 1995,
“substantial evidence” review was widely used in review of
administrative rulings. ORS 183.482(8)(c) (1995) provided
in part, as it does today:
“The court shall set aside or remand the [agency] order if
the court finds that the order is not supported by substan-
tial evidence in the record. Substantial evidence exists to
support a finding of fact when the record, viewed as a whole,
would permit a reasonable person to make that finding.”
(Emphasis added.)
Cite as 368 Or 563 (2021) 569
Because the term “substantial evidence” had a well-
established legal meaning when the legislature adopted
it, we presume that the legislature intended this court to
apply that meaning as the standard to review Tax Court
decisions. See, e.g., Ann Sacks Tile and Stone, Inc. v. Dept.
of Rev., 352 Or 380, 386, 287 P3d 1062 (2012) (“When the
words in a statute have a well-defined legal meaning, we use
that meaning in interpreting the statute.”). When reviewing
the Tax Court’s findings of fact, then, we consider whether
“the record, viewed as a whole, would permit a reasonable
person to make that finding.”
We review the Tax Court’s conclusions of law for
errors of law. ORS 305.445 (Supreme Court reviews Tax
Court’s legal conclusions for “errors * * * of law”); see also
Village at Main Street Phase II v. Dept. of Rev., 356 Or
164, 168-69, 339 P3d 428 (2014) (this court reviews Tax
Court decisions only for errors of law or lack of substantial
evidence).
In this case, the controlling law is federal, rather
than state. ORS 316.007(1) provides that the legislature
intended, “insofar as possible,” to “[m]ake the Oregon per-
sonal income tax law identical in effect to the provisions of
the Internal Revenue Code relating to the measurement of
taxable income of individuals[.]” Pursuant to that statute,
“we apply federal tax laws and federal court interpretations
of those laws in resolving the issues raised by taxpayer[ ].”
Miller v. Dept. of Rev., 327 Or 129, 135, 958 P2d 833 (1998).
With that background, we now turn to the specific
deductions at issue in this matter.
B. Dune Buggy Depreciation
Federal law generally permits a taxpayer to take a
deduction for depreciation of “a reasonable allowance for the
exhaustion, wear[,] and tear (including a reasonable allow-
ance for obsolescence)” of “property used in the trade or busi-
ness.” 26 USC § 167(a)(1). Taxpayer claimed the deduction
for the dune buggy pursuant to 26 USC section 179(a), which
permits a taxpayer to “elect (subject to certain limitations)
to treat the cost of any ‘section 179 property’ as a current
expense in the year such property is placed in service, rather
than depreciating the cost of the property over a number of
570 Khalaf v. Dept. of Rev.
years.” Hayden v. Commissioner, 204 F3d 772, 773 (7th Cir
2000) (footnote omitted).
It is not disputed that, if the legal conditions were
met, the dune buggy potentially would be deductible under
section 179. However, under treasury regulations issued by
the Internal Revenue Service, “[t]he allowance [for depre-
ciation of tangible property] does not apply to invento-
ries or stock in trade[.]” 26 CFR § 1.167(a)-2. The question is
whether the dune buggy was inventory.
For purposes of federal law, “inventory” is “property
that is held for sale.” Grant Oil Tool Co. v. United States,
180 Ct Cl 620, 632, 381 F2d 389, 397 (1967) (emphasis omit-
ted); see Galedrige Const., Inc. v. C.I.R., 73 TCM (CCH) 2838,
1997 Tax Ct Memo LEXIS 272, *29 (TC 1997) (same). To
determine whether property is inventory, we thus consider
“the purpose for which the property is held.” Latimer-Looney
Chevrolet, Inc. v. Commissioner, 19 TC 120, 125 (1952).
In this case, taxpayer is primarily in the business of
selling ATVs, and the vehicle at issue is of the type that tax-
payer regularly sells: a dune buggy. The Tax Court accord-
ingly looked at analogous federal decisions regarding when
automobiles used by an auto dealer are or are not deductible.
Federal law presumes that an automobile is inven-
tory when held by a business that is regularly engaged in
the buying and selling of those autos. That presumption
can be rebutted, however. As the Fifth Circuit explained,
an auto dealer may deduct depreciation on vehicles that had
been originally purchased as inventory, if the dealer is con-
suming the vehicle by using it for business transportation.
On the other hand, a vehicle is inventory (and not deprecia-
ble) when the auto dealer uses the vehicle to encourage sales
of identical vehicles:
“When an automobile dealer buys new automobiles for sale,
but thereafter takes them out of inventory and puts them
to the use for which an automobile is intended in the hands
of its ultimate consumer, that is, transporting personnel,
and commits them over their reasonable useful life to that
purpose in the operation of his business, the mere fact that
he is in the automobile selling business does not deprive
him of the right to depreciate such automobiles over their
Cite as 368 Or 563 (2021) 571
useful life in his hands * * *. * * * On the other hand, where
such a dealer buys new cars for sale, puts them into inven-
tory, later removes them temporarily to be used by com-
pany officials and salesmen whose primary interest is to
stimulate sales of all the dealer’s cars, including these very
cars in issue, we conclude that under the ordinary meaning
of the words used in the statute the ‘primary’ purpose for
which the dealer holds the cars during the entire holding
by it is for sale to its customers in the ordinary course of
its business.”
Duval Motor Co. v. Commissioner, 264 F2d 548, 551-52 (5th
Cir 1959) (footnote omitted). Cf. Latimer-Looney Chevrolet,
Inc., 19 TC at 126 (finding that the auto dealer had shown
that the automobiles at issue were not inventory).
The Internal Revenue Service has summarized the
case law in a revenue ruling that expressly frames the dis-
tinction as a presumption:
“A taxpayer engaged in the trade or business of selling
motor vehicles is presumed to hold all such vehicles primar-
ily for sale to customers in the ordinary course of the tax-
payer’s trade or business. To overcome this presumption,
it must be clearly shown that the motor vehicle was actu-
ally devoted to use in the business of the dealer and that
the dealer looks to consumption through use of the vehicle
in the ordinary course of business operation to recover the
dealer’s cost. A vehicle is not property used in the business
if it is merely used for demonstration purposes, or tempo-
rarily withdrawn from stock-in-trade or inventory for busi-
ness use.”
Rev Rul 75-538, 1975-2 CB 34, 1975 IRB LEXIS 99, *3.3
The Tax Court’s finding that the dune buggy was
inventory was based on the purpose for which the dune
3
The parties have not addressed the precedential value of revenue rulings.
It appears that they are entitled to at least some deference as an agency interpre-
tation of the underlying statutes and rules:
“Although a revenue ruling does not have the force and effect of Treasury
Department Regulations, see 26 CFR § 601.601(d)(2)(v)(d), it does constitute
‘an official interpretation by the Service,’ id. § 601.601(d)(2)(i)(a). Accordingly,
the Supreme Court and virtually all of the Circuits have indicated that reve-
nue rulings are entitled to some degree of deference.”
Telecom USA, Inc. v. United States, 192 F3d 1068, 1072-73 (DC Cir 1999), cert den,
529 US 1123 (2000) (footnote omitted).
572 Khalaf v. Dept. of Rev.
buggy was held, and thus it was a finding of fact. Taxpayer
does not argue that the Tax Court used an incorrect legal
standard; he focuses on the facts regarding the dune buggy
and its role in his business. Accordingly, we review the Tax
Court’s finding for whether it is supported by substantial
evidence: that is, whether “the record, viewed as a whole,
would permit a reasonable person” to find that the dune
buggy was inventory.
Some facts do support taxpayer’s position that the
dune buggy was not inventory and thus should be depre-
ciable. To begin with, it appears uncontested that taxpayer
does not carry an inventory of ATVs like the dune buggy. As
noted, taxpayer’s business was to take orders from custom-
ers in the Emirates who would send the negotiated purchase
price, and only then would taxpayer purchase a specific
ATV for that customer. With this dune buggy alone, tax-
payer financed the purchase himself. That is evidence that
the dune buggy purchase should not be treated as identical
to an auto dealer who takes a vehicle out of the dealership’s
inventory for use by the dealership.
Taxpayer notes that he offered the dune buggy for
sale on Craigslist after a year. The attempted sale cuts both
ways, however.
On the one hand, it appears uncontested that tax-
payer did not sell dune buggies domestically at all. His
efforts to sell this dune buggy over Craigslist in this country
thus would be some evidence to support his contention that
the dune buggy was not inventory.
On the other hand, taxpayer’s attempt to sell the
dune buggy just one year after its purchase is consistent
with the conclusion that the dune buggy was inventory, even
if just a single item. As noted, “inventory” is defined as prop-
erty held for sale, and taxpayer attempted (albeit unsuc-
cessfully) to sell the dune buggy. That would support the
Tax Court’s finding that the dune buggy was nondeductible
inventory.
Moreover, other evidence also supported the Tax
Court’s finding that the dune buggy was inventory, and thus
not deductible. The dune buggy was a demonstrator model,
Cite as 368 Or 563 (2021) 573
which is treated as inventory. “A vehicle is not property used
in the business if it is merely used for demonstration pur-
poses[.]” Rev Rul 75-538; see also Duval Motor Co., 264 F2d
at 552 (concluding that a car used “to stimulate sales of all
the dealer’s cars” is inventory held for sale).
Taxpayer’s contention that he deliberately kept
the mileage low on the dune buggy also supports the Tax
Court’s finding that taxpayer did not expect to recover the
cost of the dune buggy by “consumption through use of the
vehicle in the ordinary course of business operation.” Rev
Rul 75-538. It shows that taxpayer had not put the dune
buggy “to the use for which an automobile is intended in the
hands of its ultimate consumer, that is, transporting per-
sonnel,” and that he did not “commit[ ] [it] over [its] reason-
able useful life to that purpose.” Duval Motor Co., 264 F2d
at 551. Finally, taxpayer’s admitted intention to keep the
mileage low is consistent with an intention to sell the dune
buggy from the outset.
In conclusion, the record, viewed as a whole, would
permit a reasonable factfinder to find that the dune buggy
was inventory, and thus the Tax Court’s finding was sup-
ported by substantial evidence. Because the dune buggy
was inventory, it was not deductible under 26 USC section
179. We affirm the Tax Court on that question.4
C. Business Travel Expenses
As noted, taxpayer contends that the Tax Court
erred by disallowing business expense deductions for his
payment of $7,000 to rent a vehicle in Dubai from one sister,
as well as his payment of $3,150 to rent an apartment in
Dubai from another sister. We affirm the Tax Court on the
4
Taxpayer alternatively argues that the dune buggy should be treated
as purchased for research and development, and therefore deductible under
26 USC section 174(a)(1) (allowing deduction for “research or experimental
expenditures”). The Tax Court rejected that argument, because “experimen-
tal expenditures” under section 174 excludes expenditures for advertising
and marketing. See 26 CFR § 1.174-2(a)(6)(v) (“The term research or exper-
imental expenditures does not include expenditures for * * * [a]dvertising or
promotions[.]”).
We agree with the Tax Court. Taxpayer’s own brief in this court specifi-
cally admits that the dune buggy was intended for advertising. Taxpayer does
not make any argument that the law would place the dune buggy outside that
exclusion.
574 Khalaf v. Dept. of Rev.
ground that taxpayer failed to rebut the presumption that
his transfers to his sisters were gifts.
As a preliminary matter, gifts are generally not
deductible. See 26 USC § 274(b)(1) (“No deduction shall be
allowed under section 162 [authorizing deduction for ordi-
nary and necessary expenses incurred in carrying on trade
or business] * * * for any expense for gifts made directly or
indirectly to any individual * * *[.]”).
Transfers to family members are presumed to be
gifts, as explained in a decision of the United States Tax
Court:
“Transactions within a family group are subject to spe-
cial scrutiny in order to determine if they are in economic
reality what they appear to be on their face. The presump-
tion is that a transfer between closely related parties is a
gift.”
Estate of Reynolds v. Commissioner, 55 TC 172, 201 (1970)
(internal quotation marks and citations omitted). By contrast,
“ ‘[gifts] embrace * * * sales, exchanges, and other disposi-
tions of property for a consideration to the extent that the
value of the property transferred by the donor exceeds the
value in money or money’s worth of the consideration given
therefor. However, a sale, exchange, or other transfer of
property made in the ordinary course of business (a trans-
action which is bona fide, at arm’s length, and free from
any donative intent), will be considered as made for an ade-
quate and full consideration in money or money’s worth.’ ”
Stern v. United States, 436 F2d 1327, 1329 (5th Cir 1971)
(regarding transactions subject to gift tax (quoting Treas
Reg § 25.2512-8)).
Taxpayer’s payments were made to close family
members: his sisters.5 Those payments are thus presumed
to be gifts unless taxpayer presented sufficient evidence to
rebut that presumption. We conclude that he did not. As the
5
Taxpayer contends that his sisters were “business associates.” He admitted
at trial that he does not employ them. He did not offer any evidence to show that
they, in fact, qualified as “business associates.” See 26 CFR § 1.274-2(b)(2)(iii)
(defining term). His assertion that they were business associates is apparently
based on his having paid them for the apartment and car. That assumes what
needs to be proved: that the transfers were for business purposes and at fair
market value, rather than a gift.
Cite as 368 Or 563 (2021) 575
Tax Court noted, taxpayer did not present any evidence of
the fair market value of either renting a car or leasing an
apartment in Dubai. It may have been financially prudent
for him to make those expenditures, as he testified. But it is
also possible that he overpaid his sisters as a way to make
a gift to them. The fact that the sisters, and not taxpayer,
rented the apartment and purchased the car is consistent
with taxpayer having made them such a gift.6
Furthermore, the Tax Court could not determine
whether or to what extent the payments were for legitimate
business expenses. Although taxpayer testified at trial that
he had driven the car while in Dubai, he did not identify any
customer meeting for which he had needed to drive the car.7
Similarly, taxpayer’s travel log does not show the places of
any of his meetings with customers. Accordingly, taxpayer
offered no evidence that he had needed the auto for even a
single business meeting.
As for the apartment, the rental contract submit-
ted by taxpayer shows on its face that the apartment rental
period began on May 1, 2013. Taxpayer thus could not have
stayed in the apartment for any part of his first 2013 trip,
which was in January, or the first half of his second trip
(from April 10 to May 15). The disconnect between taxpay-
er’s travel dates and the actual apartment rental dates fur-
ther undermines any conclusion that the amounts trans-
ferred to that sister were for fair market value.
Taxpayer had attempted to introduce into evidence
the translated receipts from his sisters, to show that the
transfers were for a business purpose. As noted, the Tax
Court sustained the department’s objection to those receipts,
so they were not accepted into evidence. We find no error in
the Tax Court’s holding.8 And, even if the receipts had been
admitted, they would not have shown that the amount
6
Taxpayer testified that the contracts were in his sisters’ names because
he could not lawfully rent an auto or apartment in his own name, not being an
Emirates resident. Even if that is true, taxpayer could still have given his sisters
a gift.
7
Indeed, taxpayer testified that the apartment was also an office for meeting
with customers.
8
Taxpayer objects to the Tax Court ruling, but he does not allege any errors
in the Tax Court’s discussion of hearsay law. We briefly review the law here.
576 Khalaf v. Dept. of Rev.
taxpayer paid his sisters was fair market value for the car
or apartment rental.
III. CONCLUSION
The issues presented to us on appeal are factual,
and we review the Tax Court’s findings for substantial evi-
dence. For the reasons discussed, we conclude that substan-
tial evidence supported the Tax Court’s finding that the
dune buggy was inventory, and so it was not deductible. We
also conclude that substantial evidence supported the Tax
Court’s finding that the evidence presented by taxpayer was
insufficient to rebut the presumption that his transfers to
his sisters were gifts, and so those amounts could not be
deducted as business travel expenses.
The judgment of the Tax Court is affirmed.
The Oregon Evidence Code (OEC) applies to proceedings before the Tax
Court. See OEC 101(1)(a) (OEC “applies to all courts in this state” except as
specifically listed). The OEC defines hearsay as a statement made by a declar-
ant, other than while testifying at trial or hearing, that is “offered in evidence
to prove the truth of the matter asserted.” OEC 801(3). Here, the sisters were
declarants. See OEC 801(2) (defining “declarant” as “a person who makes a state-
ment”). The receipts contain the sisters’ statements. See OEC 801(1)(a) (defining
“statement” to include “[a]n oral or written assertion”). The sisters did not make
those statements while testifying at a trial or a hearing. And taxpayer offered
the receipts to prove the truth of the sisters’ statements—that he had, in fact,
made the transfers for a business purpose.
Taxpayer does not argue that the statements were admissible under any of
the hearsay exceptions set out in OEC 801, OEC 803, or OEC 804.
Accordingly, we affirm the Tax Court’s ruling excluding the affidavits.