- 37 -
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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