Maurice D. and Elinor Taylor - Page 20

                                                    - 20 -20                                                      

             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                                      
                    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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