- 31 -
is still replete with indica of fraud on his part.
b. Consistent and Substantial Understatements of
Income
The mere failure to report income is not sufficient to
establish fraud. Merritt v. Commissioner, 301 F.2d 484, 487 (5th
Cir. 1962), affg. T.C. Memo. 1959-172; Parks v. Commissioner,
supra at 664. However, consistent and substantial understatement
of income may be strong evidence of fraud. Marcus v.
Commissioner, 70 T.C. 562, 577 (1978), affd. without published
opinion 621 F.2d 439 (5th Cir. 1980). Moreover, a pattern of
consistent underreporting of income, when accompanied by other
circumstances indicating an intent to conceal income, justifies
the inference of fraud. Holland v. United States, 348 U.S. 121,
137 (1954). Even if we were to subtract the alleged loans,
petitioners have admitted to understating the Yogurt Station's
gross income in the amounts of $24,310, $60,874, and $80,499 for
1989, 1990, and 1991, respectively. These understatements are
both consistent and substantial; they are evidence of fraud.
c. Failure to Maintain Adequate Books and Records
Failure to maintain adequate books and records of income is
indicative of fraud. Truesdell v. Commissioner, 89 T.C. 1280,
1302 (1987); Gajewski v. Commissioner, 67 T.C. at 200. Although
Mr. McGirl had owned and operated a restaurant for over a decade,
he claims that invoices, receipts, and cash register tapes were
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