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established by clear and convincing evidence that an underpayment
exists for taxable year 1986.
Fraudulent Intent
After establishing the existence of an underpayment, the
second prong of respondent's burden requires that she establish
that some part of that underpayment was due to petitioner's
intent to conceal, mislead, or otherwise prevent the collection
of such taxes. Parks v. Commissioner, supra; Hebrank v.
Commissioner, supra. Over the years, courts have developed a
nonexclusive list of factors that demonstrate fraudulent intent.
These badges of fraud include: (1) Understating income, (2)
maintaining inadequate records, (3) failing to file tax returns,
(4) implausible or inconsistent explanations of behavior, (5)
concealment of income or assets, (6) failing to cooperate with
tax authorities, (7) engaging in illegal activities, (8) an
intent to mislead which may be inferred from a pattern of
conduct, (9) lack of credibility of the taxpayer's testimony,
(10) filing false documents, and (11) dealing in cash. See Douge
v. Commissioner, 899 F.2d 164, 168 (2d Cir. 1990); Bradford v.
Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601; Webb v. Commissioner, 394 F.2d 366 (5th
Cir.1968), affg. T.C. Memo. 1966-81; Recklitis v. Commissioner,
91 T.C. 874, 910 (1988). Although no single factor is
necessarily sufficient to establish fraud, the combination of a
number of factors constitutes persuasive evidence. Solomon v.
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