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collection process that he was not paying and would not pay
income taxes. The U.S. Court of Appeals for the Third Circuit
said that it would be anomalous to suggest that Raley’s attempts
to notify the Government supported an intent to defraud.
In Zell v. Commissioner, 763 F.2d 1139, 1144 (10th Cir.
1985), affg. T.C. Memo. 1984-152, the U.S. Court of Appeals for
the Tenth Circuit adopted the rationale in Raley. However, that
court held that the taxpayer was liable for the addition to tax
for fraud because he filed false Forms W-4, which was an
affirmative act of concealment or misrepresentation, and he
failed to file tax returns or disclose to the Commissioner that
he was not filing tax returns. Id. at 1145-1146.
The taxpayer in Granado v. Commissioner, 792 F.2d 91 (7th
Cir. 1986), affg. T.C. Memo. 1985-237, was a high school graduate
and electrician who said he believed that wages were not income.
He argued that he was not liable for additions to tax for fraud
“because he notified the Commissioner through various
communications that he was filing the false forms in the belief
that he was exempt from taxation.” Id. at 92. The U.S. Court of
Appeals for the Seventh Circuit, the Circuit in which this case
is appealable, disagreed with Zell and Raley, and held that the
taxpayer could not avoid liability for the addition to tax for
fraud by disclosing his evasion of taxes to the IRS. The Court
of Appeals for the Seventh Circuit said:
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