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(ii) Participation in illegal activities
The Court has repeatedly found that illegal activity
strongly indicates the presence of fraud even when the taxpayer
has not been criminally convicted. Clayton v. Commissioner, 102
T.C. 632, 647 (1994) (citing Bradford v. Commissioner, supra at
307-308) (ample evidence found of illegal activity based on
taxpayer's engaging in illegal bookmaking, even though charges
against him were dropped)); see also Meier v. Commissioner, 91
T.C. 273, 302-303 (1988); Deletis v Commissioner, T.C. Memo.
1995-512 (engaging in theft and concealment of that fact from his
employer and failing to report the income derived is a course of
conduct upon which the Court based its finding that the taxpayer
acted fraudulently).
The evidence of illegal activity in this case is even more
compelling than in Clayton because petitioner was convicted of
money laundering. Petitioner funneled the proceeds from the card
club investment into the Apache enterprises, some of it through
his own bank accounts. He also tried to recover the $12 million
investment in the card club. Petitioner admitted that his
sources of income, at least in part, were those illegal
activities for both 1986 and 1987. He produced no evidence to
show that his sources of income for either year were anything
other than criminal activity. SGA, controlled by Sam Gilbert,
paid petitioner's "wages" in 1985 and 1986 as a conduit for
returning laundered money to the Kramers.
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