- 13 - taxes. Stoltzfus v. United States, 398 F.2d 1002, 1004 (3rd Cir. 1968); Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). For purposes of the fraud addition, an underpayment of taxes can be accomplished by an overstatement of deductions as well as by an omission of income. Estate of Temple v. Commissioner, 67 T.C. 143, 161 (1976). Petitioners failed to report substantial amounts of Schedule C income. Further, they inflated business deductions by deducting practically everything they purchased (except food) as a Schedule C expense. In addition, they manipulated income and expenses to evade self-employment tax. Thus, respondent has proven, by clear and convincing evidence, that an underpayment of tax existed with respect to each of the years under consideration. Next, respondent must prove that a portion of such underpayment was due to fraud. Professional Services v. Commissioner, 79 T.C. 888, 930 (1982). Fraud is never presumed, but must be affirmatively established by clear and convincing evidence. Beaver v. Commissioner, 55 T.C. 85, 92 (1970). Because direct evidence of fraud is rarely available, fraud may be proved by circumstantial evidence. Spies v. United States, 317 U.S. 492, 499 (1943). The existence of fraud is a factual question to be determined upon a consideration of the entire record. Grosshandler v. Commissioner, 75 T.C. 1, 19 (1980); Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383 (8th Cir. 1978). However, the mere failure to report income is notPage: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
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