- 14 -
sufficient to establish fraud. Merritt v. Commissioner, 301 F.2d
484, 487 (5th Cir. 1962), affg. T.C. Memo. 1959-172.
The courts have listed several indicia or "badges of fraud"
from which fraudulent intent can be inferred. These include: (1)
Understating income; (2) inadequate books and records; (3) failure
to file tax returns; (4) implausible or inconsistent explanations
of behavior; (5) concealment of assets; (6) failure to cooperate
with tax authorities; (7) engaging in illegal activities; (8) an
intent to mislead which may be inferred from a pattern of conduct;
(9) lack of credibility of the taxpayer's testimony; and (10)
dealings in cash. Bradford v. Commissioner, 796 F.2d 303, 307 (9th
Cir. 1986), affg. T.C. Memo. 1984-601; Recklitis v. Commissioner,
91 T.C. 874, 910 (1988); Grosshandler v. Commissioner, supra at 20.
These "badges of fraud" are nonexclusive. Miller v. Commissioner,
94 T.C. 316, 334 (1990). Although no single factor is necessarily
sufficient to establish fraud, the combination of a number of
factors constitutes persuasive evidence. Solomon v. Commissioner,
732 F.2d 1459, 1461 (6th Cir. 1984), affg. per curiam T.C. Memo.
1982-603. The taxpayer's background and the context of the events
in question may be considered as circumstantial evidence of fraud.
Spies v. United States, supra at 497. The sophistication,
education, and intelligence of the taxpayer also are relevant to
this determination. Halle v. Commissioner, 175 F.2d 500, 503 (2d
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