Richard and Brenda Nelon - Page 9

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               Over the years, courts have developed various factors, or              
          "badges", which tend to establish fraud.  Recklitis v.                      
          Commissioner, 91 T.C. 874, 910 (1988).  These include:  (1) A               
          pattern of understatement of income; (2) inadequate books and               
          records; (3) failure to file tax returns; (4) concealment of                
          assets; (5) failure to cooperate with tax authorities; (6) income           
          from illegal activities; (7) implausible or inconsistent                    
          explanations of behavior; (8) an intent to mislead which may be             
          inferred from a pattern of conduct; (9) lack of credibility of              
          the taxpayer's testimony; (10) dealings in cash.  Laurins v.                
          Commissioner, 889 F.2d 910, 913 (9th Cir. 1989), affg. Norman v.            
          Commissioner, T.C. Memo. 1987-265; Edelson v. Commissioner, supra           
          at 832; Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.               
          1986), affg. T.C. Memo. 1984-601; Petzoldt v. Commissioner, 92              
          T.C. 661, 699 (1989); Rowlee v. Commissioner, supra at 1125.                
          These badges of fraud are nonexclusive.  Miller v. Commissioner,            
          94 T.C. 316, 334 (1990).                                                    
               The list of the badges of fraud, however, is illustrative.             
          We consider the totality of the facts and circumstances of each             
          case to determine whether there is fraudulent intent.  King's               
          Court Mobile Home Park, Inc. v. Commissioner, 98 T.C. 511, 516              
          (1992); Recklitis v. Commissioner, supra.                                   








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