Chong-Kak and Sang-Ok Lee - Page 22

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          petitioners' 1985 taxable years, respondent must prove the                  
          portion of the deficiency that is attributable to fraud.  Cooney            
          v. Commissioner, T.C. Memo. 1994-50; Franklin v. Commissioner,              
          T.C. Memo. 1993-184.  For purposes of section 6653(b)(1)(B)                 
          (which is applicable to petitioners' 1986 taxable years and the             
          Lees' 1987 taxable year) and section 6653(b)(1) (which is                   
          applicable to the Lees' 1988 taxable year), when respondent shows           
          that some part of the underpayment is due to fraud, the whole               
          underpayment is treated as attributable to fraud unless the                 
          taxpayer proves otherwise.                                                  
               a.  Underpayments                                                      
               Based on our careful review of the record, we find that                
          respondent has clearly and convincingly proven that Hamalee                 
          underpaid its taxes for its 1985 and 1986 taxable years, and that           
          the Lees underpaid their taxes for 1987 and 1988.  See sec.                 
          6653(c)(1) (an "underpayment" generally is the same as a                    
          "deficiency" under sec. 6211).  The record clearly convinces us             
          that Hamalee had significant amounts of income that were not                
          reported on its 1985 and 1986 tax returns, and that the Lees had            
          significant amounts of income that were not reported on their               
          1987 and 1988 tax returns.  The record also clearly convinces us            
          that these amounts were subject to tax.  Thus, with respect to              

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