David W. Hill - Page 9

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          These adjustments and corrections resulted in the overassessments           
          and deficiency reflected in the notice of deficiency issued to              
          petitioner.  In addition, respondent determined that the                    
          difference between the taxes as stated in petitioner's original             
          Federal income tax returns for 1989, 1990, and 1991, and the                
          corrected taxes for those years, is subject to the fraud penalty            
          under section 6663(a).  Sec. 1.6664-2(c), Income Tax Regs.                  


               The only issue for decision is whether petitioner is liable            
          for the fraud penalty for each of the years 1989, 1990, and 1991.           
          Section 6663(a) provides that if any part of any underpayment of            
          tax required to be shown on a return is due to fraud, there shall           
          be added to the tax an amount equal to 75 percent of the portion            
          of the underpayment which is attributable to fraud.  In order to            
          establish petitioner's liability for fraud, respondent bears the            
          burden of proving by clear and convincing evidence:  (1) An                 
          underpayment exists for each of the years in issue; and (2) that            
          some portion of the underpayment is due to fraud.5  Sec. 7454(a);           

               5Section 6663(b) provides:                                             
               If the Secretary establishes that any portion of an                    
               underpayment is attributable to fraud, the entire                      
               underpayment shall be treated as attributable to fraud,                
               except with respect to any portion of the underpayment                 
               which the taxpayer establishes (by a preponderance of                  
               the evidence) is not attributable to fraud.                            

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