- 42 -
between a taxpayer's actual income and his reported income is
evidence of fraud. Stone v. Commissioner, 56 T.C. at 224. "This
is particularly true where * * * there is other evidence that the
taxpayer was engaged in unlawful activities which at once offer a
probable explanation of the concealment, and make other
violations of law, including tax fraud, less difficult to
believe". Manton v. Commissioner, a Memorandum Opinion of this
Court dated Nov. 22, 1948 (citing Rogers v. Commissioner, 111
F.2d 987 (6th Cir. 1940), affg. 38 B.T.A. 16 (1938)); see also
Recklitis v. Commissioner, 91 T.C. at 912. Even with the
reduction in unexplained income that petitioner's explanations
showed, large discrepancies still exist for which petitioner
provided no evidence or explanation and for which we can find no
answers, even given the corroborating circumstances of the
conduit nature of Safra. This is especially true for 1986,
specifically the June expenditures of $206,500. It is also true
for 1987, where both respondent and petitioner stipulated $36,088
in unexplained bank deposits and analysis of the records shows
that as much as $41,899.34 of deposits in the three accounts
remained unexplained. When these discrepancies are viewed in the
context of petitioner's admitted illegal activity, his
demonstrated understanding of the consequences of his failure to
report his income, and his failure to maintain adequate records,
the unexplained bank deposits indicate fraudulent intent.
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