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during the period in question. The outcome of that case, along
with the holdings herein regarding the amount of unreported
income, will dictate the amount of McDonald’s taxable Social
Security benefits.
Fraud Penalty--Respondent determined, pursuant to section
6663, that each petitioner is liable for a fraud penalty with
respect to the entire income tax deficiency determined for their
respective 1989 tax years. Section 6663(a) imposes a 75-percent
addition to tax on any portion of an underpayment attributable to
fraud. Under section 6663(b), if the Commissioner establishes
that any portion of an underpayment is attributable to fraud,
then the entire underpayment is treated as attributable to fraud,
except to the extent that a taxpayer can establish by a
preponderance of the evidence that any portion of the
underpayment is not due to fraud.
Respondent has the burden of proving, by clear and
convincing evidence, that each petitioner fraudulently intended
to evade his tax. Sec. 7454(a); Rule 142(b). To meet this
burden, respondent must show that there was intent to evade taxes
known to be owing by conduct intended to mislead, conceal, or
prevent tax collection. Rowlee v. Commissioner, 80 T.C. 1111,
1123 (1983). Respondent must also show (1) that there is an
underpayment of tax, and (2) that part of such underpayment is
due to fraud. Hebrank v. Commissioner, 81 T.C. 640, 642 (1983).
Based on our holdings regarding respondent’s reconstruction
of partnership income, miscellaneous items of income, and several
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