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C. Underpayment of Tax
Petitioners have conceded an underreporting of Schedule C
gross income of $40,345, $49,839, and $47,115 for the years 1986,
1987, and 1988, respectively. This underreporting creates an
underpayment of tax for all 3 years. Consequently, the first
part of the test for fraud is satisfied.
D. Fraudulent Intent
Respondent must also prove that a portion of such
underpayment was due to fraud. Professional Servs. v.
Commissioner, 79 T.C. 888, 930 (1982).
Because direct proof of a taxpayer's intent is rarely
available, fraud may be proven by circumstantial evidence and
reasonable inferences may be drawn from the relevant facts.
Spies v. United States, 317 U.S. 492, 499 (1943); Stephenson v.
Commissioner, 79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th
Cir. 1984). An intent to conceal or mislead may be inferred from
a pattern of conduct, Spies v. United States, supra at 499, or
from a taxpayer's entire course of conduct, Stone v.
Commissioner, 56 T.C. 213, 223-224 (1971).
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
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