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OPINION
To establish fraud, respondent has the burden of proving by
clear and convincing evidence that a taxpayer underreported the
correct tax liability and that the taxpayer's underreporting was
due to fraudulent intent. Sec. 7454(a); Rule 142(b); Clayton v.
Commissioner, 102 T.C. 632, 646 (1994); Recklitis v.
Commissioner, 91 T.C. 874, 909 (1988).
With regard to fraudulent intent, respondent is required to
prove that a taxpayer intended to evade taxes by conduct intended
to conceal, mislead, or otherwise prevent the collection of
taxes. Zell v. Commissioner, 763 F.2d 1139 (10th Cir. 1985),
affg. T.C. Memo. 1984-152; Parks v. Commissioner, 94 T.C. 654,
661 (1990); Hebrank v. Commissioner, 81 T.C. 640, 642 (1983).
Generally, fraud is established by circumstantial evidence
because direct evidence of fraud is not available. Clayton v.
Commissioner, supra at 647; Rowlee v. Commissioner, 80 T.C. 1111,
1123 (1983). Courts have developed certain indicia of fraud,
including the following: (1) Understatement of income;
(2) inadequate books and records or alterations of books and
records; (3) failure to file income tax returns; (4) implausible
or inconsistent explanations of behavior; (5) concealed assets;
and (6) failure to cooperate with tax authorities. Bradford v.
Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601.
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Last modified: May 25, 2011