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has the burden of proving that some portion of the underpayment
is due to fraud by clear and convincing evidence. Sec. 7454(a);
Rule 142(b); Parks v. Commissioner, supra at 660.
Respondent must prove both that an understatement of tax
exists and the taxpayer intended to evade paying the correct tax.
United States v. Rexach, 482 F.2d 10, 31 (1st Cir. 1973); Parks
v. Commissioner, supra at 660-661. Where fraud is determined for
each of several years, respondent's burden applies separately for
each of the years. Estate of Stein v. Commissioner, 25 T.C. 940,
959-963 (1956), affd. per curiam sub nom. Levine v. Commissioner,
250 F.2d 798 (2d Cir. 1958). Where, as here, respondent has
prevailed on the issue of the existence of a deficiency by virtue
of petitioner's failure to carry his burden of proof, respondent
cannot rely on that failure to sustain his burden of proving
fraud. Parks v. Commissioner, supra; Petzoldt v. Commissioner,
92 T.C. at 700.
Respondent can satisfy his burden of proving the existence
of an underpayment when the "allegations of fraud are intertwined
with unreported and indirectly reconstructed income in one of two
ways." Parks v. Commissioner, supra at 661. Respondent may
prove an underpayment by proving a likely source of the
unreported income. Holland v. United States, supra.
Alternatively, where the taxpayer alleges a nontaxable source,
respondent may satisfy his burden by disproving the nontaxable
source so alleged. United States v. Massei, 355 U.S. 595 (1958).
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