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the specific purpose of evading a tax believed to be owing, Webb
v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. T.C.
Memo. 1966-81. A taxpayer's negligence, even gross negligence,
is not enough to prove a willful attempt to evade tax, Kellett v.
Commissioner, 5 T.C. 608, 618 (1945), and understatement of
income is not sufficient to establish fraud, Estate of Upshaw v.
Commissioner, 416 F.2d 737, 741 (7th Cir. 1969), affg. Upshaw v.
Commissioner, T.C. Memo. 1968-123. However, if a taxpayer
consistently underreports income and other circumstances show an
intent to conceal the income, an inference of fraud may be
justified. Holland v. United States, 348 U.S. at 137.
A. Badges of Fraud
The courts have developed a number of objective indicators
or "badges" of fraud. Recklitis v. Commissioner, 91 T.C. 874,
910 (1988).
Fraud may be inferred from "any conduct, the likely effect
of which would be to mislead or to conceal." Spies v. United
States, 317 U.S. 492, 499 (1943). The courts have relied on
numerous indicia of fraud including the following: (1) a
taxpayer’s failure to report income over an extended period of
time; (2) a taxpayer’s failure to file a tax return; (3) a
taxpayer’s concealment of bank accounts from internal revenue
agents, failure to furnish the Government with access to his
records, and failure to cooperate with tax authorities; (4) a
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