Jack R. Prewitt and Shelley Prewitt - Page 20

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          activity.  Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.            
          1986), affg. T.C. Memo. 1984-601; see Douge v. Commissioner, 899            
          F.2d 164, 168 (2d Cir. 1990).  These "badges of fraud" are                  
          nonexclusive.  Miller v. Commissioner, supra at 334.  Both the              
          taxpayer's background and the context of the events in question             
          may be considered as circumstantial evidence of fraud.  United              
          States v. Murdock, 290 U.S. 389, 395 (1933); Spies v. United                
          States, supra at 497; Plunkett v. Commissioner, supra at 303.               
               Respondent argues that petitioners knowingly failed to                 
          report $81,000 ($60,000 plus $21,000) for 1983 and that                     
          petitioner pled guilty to violating section 7206(1) with respect            
          to the $21,000 item.  Although petitioner pled guilty to                    
          violation of section 7206(1), he is not estopped to deny that his           
          1983 tax return was fraudulent within the meaning of section                
          6653(b).  Wright v. Commissioner, 84 T.C. 636 (1985).                       
          Petitioner, however, is estopped to deny that he filed a                    
          materially false return under section 7206(1).  Id.                         
               Petitioners do not deny that the $81,000 was omitted;                  
          however, they assert that they failed to claim more than $80,0004           
          of deductions on their 1983 return.  The $81,000 omission is                
          probative evidence.  Petitioners' contention that they were                 
          entitled to unclaimed and offsetting deductions for 1983 does not           
          lessen the impact of petitioners' intentional failure to report             
          income.                                                                     



               4 We have found that the amount allowable for 1983 totals              
          $33,000.                                                                    

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