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line of credit format and that he never designated the payments as
principal or interest.
Petitioner asserts that he paid as much $1,000 per week to
Irvington Federal, with a $25,000 initial payment. Mr. Ottey
acknowledged that at times petitioner paid as much as $1,000 a week
and in 1988 petitioner paid "a total of maybe $50,000". Mr. Ottey
further acknowledged that as of the date of petitioner's sentencing
(November 20, 1990), petitioner had repaid $91,804 to Irvington
Federal.
On the basis of the record, we conclude that petitioner made
restitution to Irvington Federal as follows: $39,082 in 1988,
$33,693 in 1989, and $19,029 in 1990. Consequently, we hold that
petitioners are entitled to reduce their income for each of the
years in issue by those respective amounts.
Issue 2. Fraud Addition to Tax and Penalties
The second issue for decision is whether petitioner is liable
for the fraud addition to tax or penalties for each year in issue.
Respondent determined the fraud addition to tax for 1988 pursuant
to section 6653(b)(1) and fraud penalties for 1989 and 1990
pursuant to section 6663. Petitioner asserts that he lacked the
necessary intent to evade taxes.
Respondent has the burden of proving fraud by clear and
convincing evidence. Sec. 7454(a); Rule 142(b). Respondent must
show that the taxpayer intended to evade taxes known to be owing by
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