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C. Additions to Tax for Fraud Under Section 6653(b)
1. Background
Respondent determined that petitioners are liable for
additions to tax for fraud for 1983, 1984, 1985, 1986, and 1987.
For 1983, 1984, and 1985, if any part of a tax underpayment is
due to fraud, the addition to tax under section 6653(b)(1) is 50
percent of the underpayment, and the addition to tax under
section 6653(b)(2) is 50 percent of the interest payable under
section 6601 for that part of the underpayment that is due to
fraud. For 1986 and 1987, the addition to tax for fraud under
section 6653(b)(1)(A) is 75 percent of the part of the
underpayment that is due to fraud, and the addition to tax under
section 6653(b)(1)(B) is 50 percent of the interest payable under
section 6601 for that part of the underpayment that is due to
fraud. Under section 6653(b)(1)(A) and (B), if respondent
establishes that part of the underpayment is due to fraud, the
additions to tax apply to the entire underpayment except with
respect to any part that petitioners show is not due to fraud.
Sec. 6653(b)(2).
Respondent has the burden of proving fraud by clear and
convincing evidence. Sec. 7454(a); Rule 142(b). For purposes of
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