Roy G. and Dorothy M. Welker - Page 14

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          inadequate recordkeeping in determining fraudulent intent).  Mr.             
          Welker exclusively received cash payments from Brockland Pontiac             
          and kept no records of the payments.  This is evidence of fraud.             
               C.   Conclusion                                                         
               After reviewing all of the facts and circumstances, we                  
          conclude that respondent has clearly and convincingly proven that            
          the underpayment of tax for each of the years in issue was due to            
          fraud on the part of Mr. Welker.  Therefore, we sustain                      
          respondent's determination that Mr. Welker is liable for                     
          additions to tax for fraud pursuant to section 6653(b)(1) and                
          (b)(2) for 1984 and 1985, and section 6653(b)(1)(A) and (b)(1)(B)            
          for 1986 and 1987.                                                           
          Addition to Tax for a Substantial Understatement                             
               On brief, petitioners argue that respondent committed an                
          abuse of discretion by failing to waive the addition to tax for a            
          substantial understatement because Mr. Welker provided a                     
          reasonable explanation for the understatement and held a good                
          faith, but mistaken, belief that the cash payments were gifts.               
          Respondent argues that there was no abuse of discretion in                   
          failing to waive the addition to tax because no reasonable cause             
               Petitioners failed to establish at trial that there was                 
          reasonable cause for treating the cash payments as gifts or that             
          Mr. Welker believed in good faith that they were gifts.  To the              
          contrary, in his criminal case he admitted that when he filed his            

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