Reaves Livestock, Inc., et al. - Page 37

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          Commissioner, 118 F.2d 308, 310 (5th Cir. 1941), revg. 40 B.T.A.            
          424 (1939), or intentionally committing an act for the specific             
          purpose of evading a tax believed to be owing, Webb v.                      
          Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. T.C. Memo.           
          1966-81.                                                                    
               The Commissioner may prove fraud by circumstantial evidence            
          because direct evidence of the taxpayer's intent is rarely                  
          available.  Stephenson v. Commissioner, 79 T.C. 995, 1005-1006              
          (1982), affd. 748 F.2d 331 (6th Cir. 1984).  The courts have                
          developed a number of objective indicators or "badges" of fraud.            
          Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).  Several                
          badges of fraud are present in this case:  (a) Substantially                
          understating income for several years, (b) having inadequate                
          books and records, (c) dealing in cash to conceal income, (d)               
          using fictitious names, (e) concealing income from their return             
          preparer, (f) diverting corporate income for personal use, and              
          (g) being convicted under section 7206(1).  Bradford v.                     
          Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.             
          Memo. 1984-601; Ruark v. Commissioner, 449 F.2d 311, 312-313 (9th           
          Cir. 1971), affg. T.C. Memo. 1969-48; Wright v. Commissioner, 84            
          T.C. 636, 643-644 (1985).                                                   











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