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Fraud is never to be imputed or presumed. However, "its
proof may depend to some extent upon circumstantial evidence, and
may rest upon reasonable inferences properly drawn from the
evidence of record." Stone v. Commissioner, 56 T.C. 213, 224
(1971); see Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983);
Stephenson v. Commissioner, 79 T.C. 995, 1006 (1982), affd. 748
F.2d 331 (6th Cir. 1984).
Courts have developed several objective "badges" of fraud.
Recklitis v. Commissioner, 91 T.C. 874, 910 (1988). These badges
of fraud include: (1) Dealings in cash; (2) inadequate records;
(3) concealment of assets; (4) understatement of income; and
(5) failure to cooperate with tax authorities. Bradford v.
Commissioner, 796 F.2d 303, 307-309 (9th Cir. 1986), affg. T.C.
Memo. 1984-601; Recklitis v. Commissioner, supra at 910; Paschal
v. Commissioner, T.C. Memo. 1994-380, affd. without published
opinion F.3d (3d Cir., Oct. 4, 1995).
Petitioner concedes that he underreported his Federal income
taxes for 1986 and 1987. Thus, we need only decide whether
petitioner’s underreporting was due to fraudulent intent.
Petitioner argues that his underreporting in tax was not
intentional and that it was caused by carelessness of his tax
return preparers. In addition, petitioner argues that
respondent’s revenue agent improperly examined his Federal income
tax return and his books and records for 1986 three separate
times without giving the written notice required by section
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