Chong-Kak and Sang-Ok Lee - Page 23

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          Hamalee's 1985 and 1986 taxable years, and the Lees' 1987 and               
          1988 taxable years, we hold that respondent has met her burden on           
          the first prong of the two-prong test for fraud.                            
               In the case of the Lees' 1985 and 1986 taxable years,                  
          however, the answer is not so clear.  Respondent determined a               
          deficiency in each of those years based on her determination that           
          Mr. Lee received constructive distributions from Hamalee equal to           
          the unreported income.  As set forth above, we sustained those              
          determinations because petitioners did not disprove them.  The              
          mere fact that we have sustained a deficiency determined by                 
          respondent, however, does not mean that an individual has                   
          underpaid his or her taxes for purposes of the additions to tax             
          for fraud.  DiLeo v. Commissioner, supra ("clear and convincing"            
          standard applies to both prongs of the two-prong test); Parks               
          v. Commissioner, 94 T.C. 654, 663-664 (1990); Hebrank v.                    
          Commissioner, 81 T.C. 640 (1983); see also Habersham-Bey v.                 
          Commissioner, 78 T.C. 304, 312 (1982), and the cases cited                  
          therein.  As the Court observed in Parks v. Commissioner, supra             
          at 660-661:                                                                 
               Where, as here, respondent has prevailed on the issue                  
               of the existence of a deficiency by virtue of a                        
               taxpayer's failure to carry his burden of proof,                       
               respondent cannot rely on that failure to sustain his                  
               burden of proving fraud.  We must be careful in such                   

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