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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
exists.
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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