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attempt to detect and recover fraudulently omitted tax and by
interest charged for the period during which the fraudulently
omitted tax was not paid.1 This thwarts the very purpose of the
penalty.
Respondent's concern that the "government's reimbursement
[through the fraud penalty] could be consumed by the * * *
[estate's] counsels' fees and fees being paid to the trustees,
who happen to be the beneficiaries of the estate", majority op.
p. 12, should concern us as well. This case appears to have been
hotly contested. The Court's initial opinion depicts a massive
fraud that respondent proved by clear and convincing evidence.
See Estate of Trompeter v. Commissioner, T.C. Memo. 1998-35.
Under the majority's holding, for every dollar that the estate
incurs in unsuccessfully fighting the deficiency and fraud
penalty, it could potentially save more than $.96 in tax and
penalties!
A simple hypothetical may help explain this: Assume a 55-
percent tax rate and a timely filed fraudulent return showing a
taxable estate of $1,000.2 The estate reports and pays tax of
$550 with the return. Later, the value of the taxable estate
(before postreturn expenses) is determined by the Commissioner to
be $2,000. The total amount of tax that should have been shown
1Petitioner is claiming postreturn administrative expenses
of $926,274 and interest expenses in the amount of $4,167,275.
2This is just an example. The 55-percent rate is applied to
taxable estates exceeding $3 million. Petitioner was clearly in
the 55-percent bracket.
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