Peter S. Pau and Susanna H. Pau - Page 17

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               Section 6663 provides for a penalty equal to 75 percent of             
          the underpayment of tax attributable to fraud.  Sec. 6663(a).               
          For section 6663 to apply, respondent must show that:  (1) An               
          underpayment of tax exists for the period at issue, and (2) a               
          portion of the underpayment stems from fraud.  Laurins v.                   
          Commissioner, 889 F.2d 910, 913 (9th Cir. 1989), affg. Norman v.            
          Commissioner, T.C. Memo. 1987-265; Parks v. Commissioner, 94 T.C.           
          654, 660-661 (1990); Petzoldt v. Commissioner, 92 T.C. 661, 699             
          (1989).  The mere failure to report income generally is not                 
          sufficient to establish fraud.  Switzer v. Commissioner, 20 T.C.            
          759, 765 (1953).                                                            
               A.  Underpayment of Tax                                                
               There is no question that petitioners underpaid their tax              
          due for 1990, given their admission that they did not report                
          income of $990,000 on their return.  Thus, we may proceed with              
          the second prong of the analysis.  See Niedringhaus v.                      
          Commissioner, 99 T.C. 202, 210 (1992).                                      
               B.  Fraudulent Intent                                                  
               Fraud is intentional wrongdoing on the part of the taxpayer            
          with the specific purpose of evading a tax believed to be owing.            
          Petzoldt v. Commissioner, supra at 698; McGee v. Commissioner, 61           
          T.C. 249, 256 (1973), affd. 519 F.2d 1121 (5th Cir. 1975).  The             
          existence of fraud is a question of fact to be resolved from the            
          entire record.  King's Court Mobile Home Park, Inc. v.                      
          Commissioner, 98 T.C. 511, 516 (1992); Gajewski v. Commissioner,            




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