- 23 -
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
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