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of income; (2) inadequate or no records; (3) concealment of
assets; (4) implausible or inconsistent explanations of behavior;
(5) failure to file tax returns; (6) failure to cooperate with
tax authorities; (7) dealing in cash; (8) engaging in illegal
activity; and (9) attempting to conceal an illegal activity.
Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986),
affg. T.C. Memo. 1984-601; Clayton v. Commissioner, 102 T.C. 632
(1994). These "badges" of fraud are nonexclusive. Miller v.
Commissioner, 94 T.C. 316, 334 (1990). A taxpayer's entire
course of conduct may establish the requisite fraudulent intent.
Stone v. Commissioner, 56 T.C. 213, 223-224 (1971); Otsuki v.
Commissioner, 53 T.C. 96, 105-106 (1969). The intent to conceal
or mislead may be inferred from a pattern of conduct. Spies v.
United States, 317 U.S. 492, 499 (1943).
Understatement of income, by itself, does not establish
fraud. However, a consistent pattern of understating income over
a number of years is strong evidence of fraudulent intent to
evade the income tax. Estate of Mazzoni v. Commissioner, 451
F.2d 197, 202 (3d Cir. 1971), affg. T.C. Memo. 1970-144 and T.C.
Memo. 1970-37; Otsuki v. Commissioner, supra at 108. Petitioners
reported income of $139,838 in 1984, $37,852 in 1985, and $21,217
in 1986. Petitioners underreported their income by $105,205.26
in 1984, $70,214.39 in 1985, and $31,204.29 in 1986.
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