- 33 -
regardless of the taxpayer's later revised conduct, for
purposes of criminal prosecution and civil fraud
liability under � 6653(b). * * *
Since fraud is based on the facts and circumstances at the time
the fraudulent return was filed, it makes sense that the facts
and circumstances considered in determining the amount of the
resulting penalty should be the same. Courts addressing the
fraud penalty examine the facts and circumstances in a time-
specific manner, not only in determining if fraud existed, but
also in determining the amount of the associated penalty. See
Arc Elec. Constr. Co. v. Commissioner, 923 F.2d 1005, 1009 (2d
Cir. 1991) ("A taxpayer who commits a fraud in reporting taxes in
one year may not, on account of a fortuitous carryback that later
develops which eliminates tax liability for that same year, claim
that the carryback wipes out the fraud as well. Once fraud is
demonstrated, it is, as it were, frozen in time, unaffected by
subsequent events."), affg. on this issue and revg. and remanding
T.C. Memo. 1990-30.
This same logic is reflected by the statutory language of
section 6663(a) that imposes the penalty on the fraudulent
"underpayment of tax required to be shown on a return." This
logic is also reflected in the legislative history of the Omnibus
Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7721(a),
103 Stat. 2106, 2395-2398, which introduced section 6663 and
retained the provisions imposing interest on the fraud penalties
from the date the return was required to be filed.
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