John B. Mathers, Sr. - Page 12

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               The failure to file tax returns, without more, is not                  
          conclusive proof of fraud; such omission may be consistent with a           
          state of mind other than the intention and expectation of                   
          defeating the payment of taxes.  Stoltzfus v. United States,                
          supra; Cirillo v. Commissioner, 314 F.2d 478, 482 (3d Cir. 1963),           
          affg. in part and revg. in part T.C. Memo. 1961-192; Kotmair v.             
          Commissioner, 86 T.C. 1253 (1986).  Failure to file, however, may           
          be considered in connection with other facts in determining                 
          whether an underpayment of tax is due to fraud.                             
               Citing Niedringhaus v. Commissioner, 99 T.C. 202, 211                  
          (1992), respondent relies here on various indicia of fraud in               
          addition to failure to file tax returns, including understatement           
          of income, inadequate records, implausible or inconsistent                  
          explanations of behavior, concealment of assets, and failure to             
          make estimated tax payments.  In this case, however, all of those           
          factors depend on the validity of petitioner's contention that              
          the distributions from the corporation for his benefit were                 
          repayments of loans and on his alleged good-faith belief that he,           
          therefore, did not have any taxable income and was not required             
          to file returns.  For various reasons, we conclude that                     
          petitioner's explanations with respect to the purported loans are           
          so implausible that we are convinced that his failure to file               
          returns and report the income reflected in the distributions from           
          the corporation for his benefit was due to fraud.                           

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