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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 not
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