- 15 - Korecky v. Commissioner, 781 F.2d 1566, 1568 (11th Cir. 1986), affg. T.C. Memo. 1985-63. For the addition to tax under section 6653(b)(1) to apply, respondent must establish for each year that (1) the taxpayer has underpaid the taxes and (2) some part of the underpayment is due to fraud. Sec. 6653(b)(1); DiLeo v. Commissioner, 96 T.C. at 873. For the addition to tax under section 6653(b)(2) to apply, respondent must establish the portion of the underpayment attributable to fraud. Sec. 6653(b)(2); DiLeo v. Commissioner, supra at 873. To prove an underpayment of tax, respondent cannot rely on the taxpayer's failure to satisfy his or her burden of proof as to the underlying deficiency. Parks v. Commissioner, 94 T.C. 654, 661 (1990). When allegations of fraud are intertwined with unreported and indirectly reconstructed income, respondent can prove an underpayment by (1) proving a likely source of the unreported income or (2) where the taxpayer alleges a nontaxable source, by disproving the alleged nontaxable source. DiLeo v. Commissioner, supra at 873-874. Based on the facts herein, respondent has shown that petitioners were engaged in a business activity during the years at issue and failed to report their gross receipts. Unreported receipts alone, however, do not establish an underpayment of tax, unless such unreported receipts are greater than the cost of goods sold plus deductible expenses. See Franklin v. Commissioner, T.C. Memo. 1993-184. Petitioners have contendedPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011