-13-
income in 1984 attributable to the refund checks. This
establishes for purposes of this case that petitioner underpaid
his income tax for 1984.
3. Fraudulent Intent
For purposes of section 6653(b), fraud is actual,
intentional wrongdoing, Mitchell v. Commissioner, 118 F.2d 308,
310 (5th Cir. 1941), revg. 40 B.T.A. 424 (1939), or intentionally
committing an act to evade a tax believed to be owing, Webb v.
Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. T.C. Memo.
1966-81. The Commissioner may prove fraud by circumstantial
evidence because direct evidence of the taxpayer's intent is
rarely available. Stephenson v. Commissioner, 79 T.C. 995,
1005-1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984).
The courts have developed a number of objective indicators
or "badges" of fraud. Recklitis v. Commissioner, 91 T.C. 874,
910 (1988). Badges of fraud present in this case are: (a)
Engaging in illegal activities, and (b) understatement of income.
See Spies v. United States, 317 U.S. 492, 499 (1943); Douge v.
Commissioner, 899 F.2d 164, 168 (2d Cir. 1990); Bradford v.
Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601; Recklitis v. Commissioner, supra.
a. Illegal Activities
Petitioner was convicted under section 7206(1) of willfully
filing an income tax return for 1984 that was false in that it
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