of Appeals for the Sixth Circuit remarked long ago in Rogers v. Commissioner,
111 F.2d 987, 989 (6th Cir. 1940), affg. 38 B.T.A. 16 (1938): "It is a fair
inference that a man who will embezzle funds in his charge will not hesitate
to understate his income with intent to defraud the Government."
A system of fraudulent bookkeeping entries by the owners of a business
combined with substantial understatements of income is evidence of fraud.
Chesbro v. Commissioner, 21 T.C. 123, 130 (1953), affd. 225 F.2d 674 (2d Cir.
1955). Mr. Burke instructed Ms. Romano to transfer funds from the MPC premium
account to the Burke Insurance Agencies' expense accounts and to draw checks
payable to herself, John J. Burke, various other employees, or "cash". The
checks would be cashed, and the funds delivered to Mr. Burke. Pursuant to Mr.
Burke's instructions, Ms. Romano recorded these withdrawals from the expense
accounts as premium refunds and expenses.
A taxpayer's excessive dealings in large amounts of cash is further
indication of fraud. Estate of Mazzoni v. Commissioner, 451 F.2d 197, 202 (3d
Cir. 1971), affg. T.C. Memo. 1970-37. Mr. Burke diverted insurance premiums
by having his employees cash checks and deliver the proceeds to him. In order
to conceal his receipt of cash, Mr. Burke instructed Ms. Romano to write
checks for amounts less than $10,000 in order to avoid generating a currency
transaction report.
We conclude that the record contains clear and convincing evidence of
Mr. Burke's fraudulent intent to evade income taxes for the taxable years in
issue. Accordingly, we find that respondent has discharged her burden, and we
sustain her determination that Mr. Burke is liable for an addition to tax for
fraud.
Respondent computed the addition to tax for fraud on only a portion of
the underpayment for each year.15 However, with respect to the addition for
1986, respondent's answer asserts an increased addition to tax for fraud by
15For purposes of applying this addition to tax, the "underpayment" is
not reduced by any amount of tax reported on a delinquently filed return.
Sec. 6653(c).
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