- 22 -
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
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011