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under section 7206(1) does not collaterally estop him from
denying that he fraudulently understated his tax liabilities;
however, it is evidence to be considered by the trier of fact.
Wright v. Commissioner, 84 T.C. 636 (1985).
Underpayment
When the allegations of fraud are intertwined with
unreported income and reconstructed income as they are here, we
must be careful not to bootstrap a finding of fraud upon a
taxpayer's failure to prove the Commissioner's deficiency
determination erroneous. Parks v. Commissioner, supra at 661.
Respondent offered prima facie evidence of petitioners' net
worth. For the reasons discussed above, we find that
respondent's net worth computations established substantial
amounts of unreported income and consequent underpayment of taxes
for 1984, 1985, and 1986.
Fraudulent Intent
Respondent must prove by clear and convincing evidence that
petitioner had fraudulent intent. Id. at 664. Fraud may be
proven by circumstantial evidence. Stephenson v. Commissioner,
79 T.C. 995, 1005-1006 (1982), affd. 748 F.2d 331 (6th Cir.
1984).
Courts have developed various factors or "badges" that tend
to establish fraud. Circumstantial evidence that may give rise
to a finding of fraudulent intent includes: (1) Understatement
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