Eloise Gaddy Joens - Page 24

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            Massei, 355 U.S. 595 (1958); Kramer v. Commissioner, 389 F.2d                             
            236, 239 (7th Cir. 1968), affg. T.C. Memo. 1966-234; Parks v.                             
            Commissioner, supra.  Petitioner does not allege that she had                             
            nontaxable sources of income.  Moreover, we find that                                     
            petitioner's involvement in illegal narcotics trafficking                                 
            activities was a likely source of the unreported income.                                  
            Petitioner and Emmens underpaid the tax due on their joint                                
            returns for each year at issue in which respondent applied the                            
            net worth method.                                                                         
                  Fraudulent Intent                                                                   
                  Respondent must prove by clear and convincing evidence that                         
            petitioner had fraudulent intent.  Parks v. Commissioner, supra                           
            at 664.  Fraud is defined as actual, intentional wrongdoing,                              
            Mitchell v. Commissioner, 118 F.2d 308, 310 (5th Cir. 1941),                              
            revg. 40 B.T.A. 424 (1939), or intentionally committing an act                            
            for the specific purpose of evading a tax believed to be owing,                           
            Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg.                            
            T.C. Memo. 1966-81.                                                                       
                  The Commissioner may prove fraud by circumstantial evidence                         
            because direct evidence of the taxpayer's intent is rarely                                
            available.  Stephenson v. Commissioner, 79 T.C. 995, 1005-1006                            
            (1982), affd. 748 F.2d 331 (6th Cir. 1984).  The courts have                              
            developed a number of objective indicators or "badges" of fraud,                          
            such as: (1) A pattern of substantial understatements of income,                          





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