-25-
returns, or section 6501(e)(1)(A), dealing with substantial
omission of income, extends the period for assessment. If we
were to decide that neither section applies in this case,
discussion of the other issues for 1988 would be unnecessary.
With respect to fraud, conduct over a period of years may be
considered in determining fraudulent intent for a particular
year. Spies v. United States, 317 U.S. 492, 499 (1943).
Respondent must prove fraud by clear and convincing evidence.
Sec. 7454(a); Rule 142(b). She must prove an underpayment
without reliance on petitioners' failure to overcome the normal
presumption of correctness of the notice of deficiency. Otsuki
v. Commissioner, 53 T.C. 96, 106 (1969). On the other hand, a
determination that respondent has not proven fraud by clear and
convincing evidence is not inconsistent with a determination that
petitioners have failed in their burden of proof or that the
preponderance of the evidence establishes that they have
unreported income or have claimed deductions to which they are
not entitled.
For the foregoing reasons, we begin our discussion with an
analysis of the issues relating to fraud. For the reasons set
forth below, we conclude that respondent has proven fraud for
1988 but has not proven fraud for 1990 or 1991.
Fraud
The addition to tax for fraud under section 6653(b), and its
successor penalty under section 6663, are civil sanctions
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