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Fraud Addition To Tax For 1988 And Fraud Penalties For 1989 And 1990
Whether a taxpayer is liable for a fraud addition to tax or
a fraud penalty constitutes a question of fact.
Fraud is never to be imputed or presumed. However, "its
proof may depend to some extent upon circumstantial evidence, and
may rest upon reasonable inferences properly drawn from the
evidence of record." Stone v. Commissioner, 56 T.C. 213, 224
(1971); see also Rowlee v. Commissioner, 80 T.C. 1111 (1983);
Stephenson v. Commissioner, 79 T.C. 995 (1982), affd. 748 F.2d
331 (6th Cir. 1984).
The consistent understatement of substantial amounts of
income over several years is strong evidence of fraud. Merritt
v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962), affg. T.C.
Memo. 1959-172; Vannaman v. Commissioner, 54 T.C. 1011, 1018
(1970). Any conduct, the likely effect of which would be to
mislead or conceal, is indicative of fraud. Fraud must be proved
by respondent by clear and convincing evidence. Sec. 7454; Rule
142(b).
Where fraud is established for a year, the 75-percent fraud
addition to tax for 1988 under section 6653(b)(1) and (2) and the
75-percent fraud penalty for 1989 and 1990 under section 6663(a)
and (b) apply to the entire tax deficiency unless the taxpayer
establishes that some portion of the underpayment is not
attributable to fraud.
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