- 20 - corporation nor the officer reported income from the sale of the airplane or the diversion of the sale proceeds. We held both taxpayers were liable for the civil fraud penalty, because they failed to report the income with the intention of evading Federal income tax. In Mitchell, as in the case before us, the taxpayers' conduct occurred in only 1 year, and the conduct related to a single transaction. See also Taylor v. Commissioner, T.C. Memo. 1993-546. Petitioners cite Stone v. Commissioner, 22 T.C. 893 (1954), arguing that respondent cannot establish fraud in reliance on unreported income for 1 year. However, that case does not stand for such a broad proposition. Rather, in Stone, we held that, without more, a gross understatement of income in 1 year did not establish that "there was fraud with intent to evade tax in this instance." Id. at 904 (emphasis added). In the case before us, respondent relied on a number of factors to prove fraud, as shown below. 2. Inadequacy of Books and Records In October of 1995, petitioner met with Clement for the first time, presenting Sand Hill's records of expenses to establish petitioners' entitlement to deductions claimed on their Schedules C. Clement found the records adequate to verify each and every expense claimed for Sand Hill. However, petitioner presented no records for Sand Hill's income and conceded that his handling of the income of Sand Hill was entirely inadequate.Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
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