Roy G. and Dorothy M. Welker - Page 10

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          sufficient to establish fraud, the combination of a number of                
          factors constitutes persuasive evidence.  Solomon v.                         
          Commissioner, 732 F.2d 1459, 1461 (6th Cir. 1984), affg. per                 
          curiam T.C. Memo. 1982-603.  We note that some conduct and                   
          evidence can be classified under more than one factor.                       
                    1.   Mr. Welker's Sophistication and Experience                    
               Mr. Welker was an office manager/loan officer for a finance             
          company.  He had a high school education and no formal training              
          in tax return preparation or accounting.  Mr. Welker, however,               
          knew to deduct Social Security and withholding taxes from the                
          amounts he paid himself from Miller-Senate.  Additionally, he                
          informally asked Miller-Senate's accountant some questions about             
          tax return preparation.                                                      
                    2. Consistent and Substantial Understatements of                   
               The mere failure to report income is not sufficient to                  
          establish fraud.  Merritt v. Commissioner, 301 F.2d 484, 487 (5th            
          Cir. 1962), affg. T.C. Memo. 1959-172.  Consistent and                       
          substantial understatement of income, however, may be strong                 
          evidence of fraud when coupled with other circumstances.  Marcus             
          v. Commissioner, 70 T.C. 562, 577 (1978), affd. without published            
          opinion 621 F.2d 439 (5th Cir. 1980).  A pattern of consistent               
          underreporting of income, when accompanied by other circumstances            
          indicating an intent to conceal income, may justify the inference            

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