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Issue 1. Addition to Tax for Fraud.
Respondent bears the burden of proving fraud by clear and
convincing evidence. Sec. 7454(a); Rule 142(b). Respondent must
establish that petitioner underpaid her taxes for each taxable
year at issue and that some part of that underpayment was due to
petitioner's intent to conceal, mislead, or otherwise prevent the
collection of such taxes. Parks v. Commissioner, 94 T.C. 654,
660-661 (1990); Hebrank v. Commissioner, 81 T.C. 640, 642 (1983);
see also Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968),
affg. T.C. Memo. 1966-81. For the reasons set forth below, we
find that respondent has failed to satisfy her burden.
The issue of fraud presents a factual question that must be
decided on the basis of an examination of all the evidence in the
record. Mensik v. Commissioner, 328 F.2d 147 (7th Cir. 1964),
affg. 37 T.C. 703 (1962); Stone v. Commissioner, 56 T.C. 213, 224
(1971); Stratton v. Commissioner, 54 T.C. 255, 284, supplemented
by 54 T.C. 1351 (1970). Fraud is never presumed; it must be
established by some independent evidence of fraudulent intent.
Beaver v. Commissioner, 55 T.C. 85 (1970). Fraud may be proved
by circumstantial evidence and inferences drawn from the record
because direct proof of a taxpayer's intent is rarely available.
Spies v. United States, 317 U.S. 492 (1943); Rowlee v.
Commissioner, 80 T.C. 1111 (1983); Stephenson v. Commissioner, 79
T.C. 995 (1982), affd. 748 F.2d 331 (6th Cir. 1984).
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