Court upholds fraud penalties after charity promoter fails to file returns
Adam Shryock v. Commissioner. United States Tax Court. No. 4757-23. 2026.
A taxpayer who ran a deceptive breast cancer fundraising business, did not file tax returns for over ten years, and ignored both the IRS and the Tax Court was still held responsible for taxes, fraud penalties, and judgment.
Holding
The Tax Court granted summary judgment to the IRS and upheld income tax deficiencies and additions to tax for fraudulent failure to file returns under §6651(f) and failure to pay tax under §6651(a)(2) for 2011 through 2013.
Why It Matters
This decision shows that the IRS can easily prevail when a taxpayer fails to respond to a lawsuit and allows important facts to go unchallenged.
It is a strong example of the Tax Court sustaining fraudulent failure-to-file penalties under §6651(f), a penalty the IRS must prove with clear and convincing evidence.
The case reinforces that shareholders cannot deduct expenses incurred by their corporations on their individual returns.
The ruling is largely a routine application of settled law, but the underlying facts demonstrate the types of conduct courts view as powerful evidence of fraud.
Key Facts
Adam Shryock owned and operated Boobies Rock! Inc., a for-profit company that organized thousands of purported breast cancer fundraising events across the country between 2011 and 2013. Representatives working for the company told attendees that donations would support breast cancer research. Funds were deposited into accounts controlled by Shryock or delivered directly to him.
The IRS determined that Shryock received:
$176,257 of gross receipts in 2011, $102,303 in 2012, and $103,476 in 2013.
Constructive dividends, meaning corporate payments that benefited him personally, of $87,116 in 2011, $332,496 in 2012, and $81,419 in 2013.
Additional rental income of $900 in 2013.
Shryock did not file personal income tax returns for any of the years in question and did not make estimated tax payments. The IRS used bank records and other outside information to estimate his income and prepared substitute returns under §6020(b).
The record also showed a lengthy history of noncompliance:
He had not filed a Form 1040 since 2001.
Multiple states obtained injunctions against him and his entities for deceptive charitable solicitation practices.
He pleaded guilty in federal Court to willfully failing to file his 2011 return and served a prison sentence.
He later violated supervised release conditions and was arrested again.
Statutory Framework
§6651(a)(1) imposes a penalty for failing to file a return on time.
§6651(f) increases that penalty when the failure to file is fraudulent.
§6651(a)(2) imposes a penalty for failing to timely pay tax shown on a return or substitute for a return.
§6020(b) allows the IRS to prepare a substitute return when a taxpayer fails to file.
Constructive dividends are corporate distributions that provide a personal economic benefit to a shareholder and are generally taxable as dividend income when paid from corporate earnings and profits.
Arguments
Taxpayer argued:
The IRS calculated deficiencies based on gross deposits, without allowing certain deductions.
The business incurred expenses such as labor, marketing, shipping, cost of goods sold, and charitable contributions.
Government argued:
Shryock failed to challenge the IRS’s determination that he received unreported income.
The alleged expenses belonged to his corporation, not to him personally.
Even if deductions were otherwise available, he provided no records to substantiate them.
The facts established fraudulent failure to file returns.
Court’s Reasoning
Shryock never disputed that it received the income identified by the IRS and therefore effectively conceded the unreported income adjustments.
He also failed to challenge the §6651(a)(2) failure-to-pay penalties, resulting in those issues being deemed conceded.
The expenses described in his petition appeared to be expenses of Boobies Rock! Inc., not personal expenses deductible on his individual return.
He produced no books, records, receipts, or other evidence to substantiate any claimed deductions.
The Court relied heavily on facts deemed admitted after Shryock repeatedly ignored Court orders and failed to respond to the IRS’s allegations.
Numerous badges of fraud were present, including substantial unreported income, failure to file returns, failure to maintain records, failure to cooperate with tax authorities, failure to make estimated tax payments, and involvement in deceptive business activities.
His prior criminal conviction for willful failure to file further supported the conclusion that his conduct was intentional rather than accidental.
Result
The Tax Court ruled in favor of the IRS and upheld the tax deficiencies and fraud penalties for each year at issue.
The Takeaway
The headline facts involve a questionable fundraising operation. Still, the tax lesson is simpler: taxpayers who do not file returns, keep records, or participate in their Tax Court cases leave the IRS with a nearly uncontested path to judgment. Once the facts are deemed admitted, the outcome is often a formality.
List of Citations
§6651(f): Fraudulent failure-to-file penalty.
§6651(a)(2): Failure-to-pay penalty.
§6020(b): IRS authority to prepare substitutes for return.
Welch v. Helvering, 290 U.S. 111 (1933): Presumption that IRS deficiency determinations are correct.
Funk v. Commissioner, 123 T.C. 213 (2004): Failure to challenge a penalty can result in concession.
Doncaster v. Commissioner, 77 T.C. 334 (1981): Deemed admissions can establish fraud.
Bradford v. Commissioner, 796 F.2d 303 (9th Cir. 1986): Leading case discussing badges of fraud.
Petzoldt v. Commissioner, 92 T.C. 661 (1989): Failure to file despite substantial income is evidence of fraud.
United States v. Boyle, 469 U.S. 241 (1985): Taxpayer bears the burden of proving reasonable cause for failure to file.