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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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