James Alan Price - Page 12

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                    b.   Circumstantial Evidence of Fraud                             
               Fraud may also be proven by circumstantial evidence.                   
          Stephenson v. Commissioner, 79 T.C. 995, 1005-1006 (1982), affd.            
          748 F.2d 331 (6th Cir. 1984).  The courts have developed a number           
          of objective indicators or "badges" of fraud.  Recklitis v.                 
          Commissioner, 91 T.C. 874, 910 (1988).  The badges of fraud in              
          this case corroborate petitioner's admitted intent to evade tax             
          for 1985, 1986, and 1987.  The badges of fraud present here are:            
          (a) Filing false Forms W-4; (b) failure to file income tax                  
          returns; (c) substantially understating income for several years;           
          and (d) making implausible or inconsistent explanations of                  
          behavior.  Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th             
          Cir. 1986), affg. T.C. Memo. 1984-601; Ruark v. Commissioner,               
          449 F.2d 311, 312-313 (9th Cir. 1971), affg. T.C. Memo. 1969-48;            
          Meier v. Commissioner, 91 T.C. 273, 297-298 (1988).                         
                    c.   Filing False Forms W-4                                       
               Filing false Forms W-4 may be evidence of fraud.  Bradford             
          v. Commissioner, supra at 308; Recklitis v. Commissioner, supra             
          at 910-911; Rowlee v. Commissioner, supra at 1125; Stephenson v.            
          Commissioner, supra at 1007.                                                
               Respondent penalized petitioner for filing false Forms W-4             
          for his 1982 tax year.  Despite this, petitioner later filed                
          false Forms W-4:  (a) In 1984, claiming 99 withholding                      
          allowances; (b) in 1985, claiming 14 withholding allowances, and            





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