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existence of fraud is a question of fact established by
consideration of the entire record. Petzoldt v. Commissioner,
supra at 699; Estate of Pittard v. Commissioner, 69 T.C. 391, 400
(1977). Direct proof of fraud is seldom available; therefore,
fraud may be proved by circumstantial evidence and reasonable
inferences from the facts. Petzoldt v. Commissioner, supra;
Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). The courts
have recognized numerous indicia or “badges” of fraud, including
the following: (1) A pattern of underreporting income; (2)
maintaining inadequate records; (3) giving implausible or
inconsistent explanations of behavior; and (4) establishing a
pattern of inaction and delay during the pretrial and trial
proceedings. Spies v. United States, 317 U.S. 492, 499 (1943);
Conti v. Commissioner, 39 F.3d 658, 662 (6th Cir. 1994), affg.
and remanding on other grounds T.C. Memo. 1992-616; Bradford v.
Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601; Rice v. Commissioner, T.C. Memo. 2003-208; McCue
v. Commissioner, T.C. Memo. 1983-580. Although no single factor
is necessarily sufficient to establish fraud, the existence of
several indicia constitutes persuasive circumstantial evidence of
fraud. Petzoldt v. Commissioner, supra at 700.
Respondent reconstructed petitioner’s income in the years at
issue by use of the source and application of funds method.
Respondent’s analysis indicates that petitioner substantially
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