- 22 -
1991, respectively. Petitioner, however, has failed to prove
that more than two-thirds of the yearend balances did not
constitute income. To the extent petitioner's yearend
adjustments exceed two-thirds of the yearend balances, we sustain
respondent's determination.5
Fraud
The addition to tax or penalty in the case of fraud is a
civil sanction provided primarily as a safeguard for the
protection of the revenue and to reimburse the Government for the
heavy expense of investigation and the loss resulting from a
taxpayer's fraud. Helvering v. Mitchell, 303 U.S. 391, 401
(1938). Respondent has the burden of proving, by clear and
convincing evidence, an underpayment for each year and that some
part of the underpayment was due to fraud. Sec. 7454(a); Rule
142(b). To satisfy his burden of proof, respondent must show two
things: (1) An underpayment exists; and (2) the taxpayer
intended to evade taxes known to be owing by conduct intended to
conceal, mislead, or otherwise prevent the collection of taxes.
Parks v. Commissioner, 94 T.C. 654, 660-661 (1990). The mere
failure to report income, however, is not sufficient to establish
fraud. Switzer v. Commissioner, 20 T.C. 759, 765 (1953). If
5 Except for 1991, if no part of an underpayment for a tax
year is due to fraud, respondent is barred from assessing a
deficiency resulting from the yearend ledger adjustment issue
pursuant to sec. 6501(a). See discussion of limitations period,
infra.
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