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121, 137 (1954) However, petitioner's understatements of income
in each of the 3 years involved were both substantial in amount
and in proportion to the amounts reported on his original Federal
income tax returns.6
Extensive dealing in large amounts of cash also constitutes
evidence of fraud. Estate of Mazzoni v. Commissioner, 451 F.2d
197, 202 (3d Cir. 1971), affg. T.C. Memo. 1970-37. Petitioner
received cash payments from Mr. Hall approximately every other
week. These cash payments totaled $142,377 in 1989, $76,450 in
1990, and $180,608 in 1991. The reason that dealing in large
amounts of cash is evidence of fraud is that cash is difficult to
trace unless the taxpayer maintains contemporaneous and accurate
records.
Petitioner kept no records to reflect accurately his receipt
of large amounts of cash income. The failure by a knowledgeable
taxpayer to maintain adequate records is evidence of fraud.
Galant v. Commissioner, 26 T.C. 354, 365 (1956). Petitioner was
a knowledgeable businessman. He was the director of a department
that had an annual budget in excess of $1.2 million. In addition
to this position, petitioner operated a construction consulting
business as a sole proprietorship. He was a general partner in a
real estate partnership, a shareholder in an S corporation, and
6Petitioner reported a total taxable income of $127,749 on
his returns for the 3-year period, whereas his true taxable
income for those years was determined to be $534,926.19, an
understatement of $407,177.19 for the 3-year period.
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