- 10 -
presumed. Beaver v. Commissioner, 55 T.C. 85, 92 (1970). Fraud
may, however, be proved by circumstantial evidence because direct
proof of the taxpayer's intent is rarely available. The
taxpayer's entire course of conduct may establish the requisite
fraudulent intent. Stone v. Commissioner, 56 T.C. 213, 223-224
(1971); Otsuki v. Commissioner, 53 T.C. 96, 105-106 (1969). A
pattern of consistent underreporting of income for a number of
years, especially when accompanied by other circumstances showing
an intent to conceal, justifies the inference of fraud as to each
of the years. Holland v. Commissioner, 348 U.S. 121, 137 (1954);
Otsuki v. Commissioner, supra.
Under section 61, gross income includes "all income from
whatever source derived." Gross income includes funds derived
from legal and illegal sources. Rutkin v. United States, 343
U.S. 130 (1952). Where a taxpayer keeps no books or records, or
fails to file a return from which his income tax liability can be
assessed, the Internal Revenue Service (IRS) may reconstruct the
taxpayer's income. Sec. 446(b); Moore v. Commissioner, 722 F.2d
193 (5th Cir. 1984), affg. T.C. Memo. 1983-20. The IRS has great
latitude in reconstruction methods. Giddio v. Commissioner, 54
T.C. 1530, 1532-1534 (1970). As a general rule, the computation
of taxable income is made under the method of accounting
regularly employed by the taxpayer or, if no method of accounting
has been used by the taxpayer, made under such method as, in the
opinion of respondent, clearly reflects income. Sec. 446(b);
Moore v. Commissioner, supra; Giddio v. Commissioner, supra.
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