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Carcasi with all of the information he needed to prepare the
initial 1991 return properly. Bearing in mind that we are
evaluating the reasonableness of respondent’s assertion of the
fraud penalty in that context, rather than the ultimate
applicability of the penalty itself, we find that respondent’s
position in that regard was reasonable (i.e., that respondent had
a reasonable basis for believing that he could prove by clear and
convincing evidence that petitioner intended to evade a tax that
she believed to be owing).6
C. Understatement of 1992 Income
Respondent also averred that petitioner fraudulently
understated business income and interest income on the initial
1992 return by $1,123,263 and $14,881, respectively. However,
the circumstances of the understatement of 1992 income differ
markedly from those of the understatement of 1991 income. The
understatement of business income on the initial 1992 return
plainly resulted from Mr. Carcasi’s (not petitioner’s) plan to
treat BIC as a division of FFI, as did substantially all of the
understatement of interest income on that return. More
significantly, we are convinced by FFI’s $300,000 estimated tax
payment in 1992 that petitioner did not intend to evade tax on
6 Compare Gutierrez v. Commissioner, T.C. Memo. 1995-569,
in which we concluded that, although the taxpayer prevailed on
the fraud issue at trial, it was reasonable for the Commissioner
to put the taxpayer’s credibility before the finder of fact.
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