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Respondent must establish by clear and convincing evidence
that petitioners filed a false or fraudulent return with the
intent to evade tax. Botwinik Brothers of Mass., Inc. v.
Commissioner, 39 T.C. 988, 996 (1963); Davis v. Commissioner,
T.C. Memo. 1991-603. Respondent may prove such intent by
circumstantial evidence, Davis v. Commissioner, supra, which may
include substantial understatement of income, inadequate books
and records, failure to file returns, concealment of assets,
failure to cooperate with tax authorities, and participation or
concealment of illegal activities. Chin v. Commissioner, T.C.
Memo. 1994-54; see Niedringhaus v. Commissioner, 99 T.C. 202, 211
(1992).
We must first determine to what extent, if any, Mr.
Maloney's conviction under section 7206(1) collaterally estops
petitioners from asserting exculpatory facts. The doctrine of
collateral estoppel precludes the relitigation of any issue of
fact or law that is actually litigated and necessarily determined
by a valid and final judgment. Montana v. United States, 440
U.S. 147, 153 (1979); Wright v. Commissioner, 84 T.C. 636, 639
(1985). Because the intent to evade tax is not an element of the
crime charged under section 7206(1), a conviction under this
section does not establish, as a matter of law, that a taxpayer
intended to evade tax. Wright v. Commissioner, supra at 643;
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