- 15 -
Commissioner, supra. Similarly, understated income, inadequate
records, implausible or inconsistent explanations of behavior,
concealment of assets, and failure to cooperate with tax
authorities are all indicia of fraud. Bradford v. Commissioner,
796 F.2d 303 (9th Cir. 1986), affg. T.C. Memo. 1984-601.
Petitioner correctly points out that respondent cannot
properly rely on the presumption of correctness generally
accorded her determinations in order to satisfy her burden with
respect to an issue of fraud. See Petzoldt v. Commissioner, 92
T.C. 661, 700 (1989). Petitioner fails to recognize, however,
that respondent is not attempting to do so in the instant case.
When respondent's argument is appreciated, it is apparent that
respondent fully recognizes her two-pronged burden.
The parties agree that, in order to prove fraud, respondent
must establish that (1) an underpayment exists and (2) petitioner
intended to evade taxes known to be owing by conduct designed to
conceal, mislead, or otherwise prevent the collection of taxes.
See Rowlee v. Commissioner, supra. It is petitioner's argument,
however, that respondent is relying on petitioner’s failure to
substantiate the Schedule C expenses at issue in order to
establish that an underpayment exists. We disagree. The
substance of respondent’s argument does not depend on such
reliance. With respect to establishing fraud, respondent
principally argues that petitioner did not incur the expenses at
issue, not that petitioner failed to substantiate such expenses.
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