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Underpayments Attributable to Fraud
The addition to tax for fraud is a civil sanction provided
primarily as a safeguard for the protection of the revenue and to
reimburse the Government for the heavy expense of investigation
and the loss resulting from a taxpayer’s fraud. Helvering v.
Mitchell, 303 U.S. 391, 401 (1938).
Section 6653(b) as applicable to 1985 imposes an addition to
tax of 50 percent of the underpayment if any portion of the
underpayment is due to fraud, and an additional amount equal to
50 percent of the interest with respect to the portion of the
underpayment attributable to fraud. For 1986 and 1987, section
6653(b) imposes an addition to tax of 75 percent of the portion
of the underpayment attributable to fraud, and an additional
amount equal to 50 percent of the interest with respect to such
portion. For 1988, section 6653(b) imposes an addition to tax of
75 percent of the underpayment attributable to fraud. For 1989,
the fraud penalty imposed under section 6663 is equal to
75 percent of the portion of the underpayment attributable to
fraud.
To overcome the limitations defense and to sustain the
additions to tax or penalties for fraud, respondent must prove,
by clear and convincing evidence, for each year, an underpayment
of tax and fraudulent intent. Sec. 7454(a); Rule 142(b). Where,
as here, the allegations of fraud are intertwined with unreported
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