Ronald E. Reed - Page 12

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          Respondent has the burden of proving fraud by clear and                     
          convincing evidence.  Sec. 7454(a); Rule 142(b).  To prove that a           
          taxpayer fraudulently underpaid a dollar of tax, respondent must            
          prove both the fact of the underpayment and fraudulent intent               
          with respect thereto.  See, e.g., Recklitis v. Commissioner,                
          91 T.C. 874, 909 (1988).  “Fraud is established by proving that             
          the taxpayer intended to evade tax believed to be owing by                  
          conduct intended to conceal, mislead, or otherwise prevent the              
          collection of such tax.”  Id.                                               
               We have found that, based on the plea agreement and the                
          statement of facts, petitioner received proceeds from illegal               
          drug activities, which proceeds were not reported as income for             
          the years in question, and sustained respondent's determination             
          of deficiencies against petitioner (with one adjustment).  We               
          believe that the evidence in this case clearly and convincingly             
          supports findings of underpayments in equal amounts.  See sec.              
          6653(c)(1).  Thus, the sole issue remaining for consideration in            
          determining the applicability of the additions to tax for fraud             
          is whether petitioner acted willfully to evade taxes known to be            
          owing.  We believe that he did, for each year, with respect to              
          the totality of that year’s underpayment.                                   
               Petitioner filed income tax returns for the years in                   
          question, establishing that he understood his obligation to file            
          returns and pay tax.  Petitioner’s failure to report substantial            





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