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statement from respondent's brief: “It is presumed that if
petitioner could have used * * * funds [of Pieces of Eight] for
nondeductible personal expenditures then at least that amount of
income must have been earned.” Such a presumption, however, is
insufficient to carry respondent’s burden of proof.14 The fact
that expenditures were made, without evidence supporting the
inference that they were made from currently taxable income,
rather than from resources on hand at the beginning of the period
in question, is not sufficient to establish, by clear and
convincing evidence, that underpayments of tax occurred in each
of 1988 and 1989. We therefore do not sustain respondent’s
determination with respect to the addition to tax for fraud for
1988 and the addition to tax for fraudulent failure to file for
1989.
Fraudulent Intent
Because we have found that respondent has carried the burden
of proving that an underpayment of tax occurred only with respect
to 1987, we shall consider the second prong of the fraud test
14
Elsewhere on brief, respondent argues that “petitioner
cannot reasonably dispute that the amounts of income he failed to
report in each of the three consecutive years before the Court
was substantial” to support the determination that petitioner is
liable for the addition to tax for fraud. If respondent means to
suggest that petitioner should be held liable for the addition to
tax for fraud because he cannot show error in respondent’s
determinations, we must point out that respondent bears the
burden of proof on this issue, and a finding of fraud cannot be
based upon petitioner’s failure to show error in respondent’s
determinations. Parks v. Commissioner, 94 T.C. 654, 660-661
(1990).
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