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we are confident he would not have lied and encouraged others to
lie with respect to the activities that gave rise to such
expenses.
Fraudulent intent may also be inferred from a pattern of
conduct, particularly if such pattern involves the underreporting
of income. See Holland v. United States, 348 U.S. 121 (1954);
Spies v. United States, 317 U.S. 492 (1943); Otsuki v.
Commissioner, 53 T.C. 96 (1969). We find that the record clearly
indicates that petitioner engaged in a pattern of underreporting
his income. During a period when petitioner knew his income from
Besco was based solely on the purchases his department made from
Besco, petitioner offset such income with various expenses known
not to exist. As this pattern involves consistent and
substantial understatements of income, we conclude that it is
strong evidence of fraud. See Marcus v. Commissioner, 70 T.C.
562, 577 (1978), affd. without published opinion 621 F.2d 439
(5th Cir. 1980).
The record contains other evidence that supports an
inference of fraud. Respondent has established to the
satisfaction of the Court that petitioner maintained inadequate
or no records with respect to the alleged Schedule C expenses
used to offset the income received from Besco during the taxable
years at issue. This failure to maintain adequate records may be
used to support a finding of fraud. Bradford v. Commissioner,
796 F.2d 303 (9th Cir. 1986); Woodham v. Commissioner, 256 F.2d
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