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Respondent has the burden of proving, by clear and
convincing evidence, that some part of an underpayment for each
year was due to fraud.6 Sec. 7454(a); Rule 142(b). Respondent's
burden with respect to fraudulent intent is met if it is shown
that the taxpayer intended to evade taxes known to be owing by
conduct intended to conceal, mislead, or otherwise prevent the
collection of such taxes. Stoltzfus v. United States, 398 F.2d
1002, 1004 (3d Cir. 1968); Webb v. Commissioner, 394 F.2d 366,
377 (5th Cir. 1968), affg. T.C. Memo. 1966-81. Fraud is not
presumed. Beaver v. Commissioner, 55 T.C. 85, 92 (1970).
However, fraud may be proved by circumstantial evidence because
direct proof of the taxpayer's intent is rarely available.
Stephenson v. Commissioner, 79 T.C. 995, 1005-1006 (1982), affd.
748 F.2d 331 (6th Cir. 1984). The 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).
Fraudulent intent may be inferred from various kinds of
circumstantial evidence or "badges of fraud", including
6 For the taxable years 1983, 1984, and 1985 respondent
must prove the specific portion of the underpayment of tax
attributable to fraud for purposes of establishing the addition
to tax under sec. 6653(b)(2). However, for the taxable years
1986 and 1987, sec. 6653(b)(2) provides that, if respondent
establishes that any portion of an underpayment is attributable
to fraud, the entire underpayment shall be treated as
attributable to fraud unless the taxpayer shows that some portion
of the underpayment is not attributable to fraud.
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Last modified: May 25, 2011