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Petitioners have conceded that they failed to report
significant amounts of income that they received from V&V and
their rental property. In addition, they have failed to
establish that such amounts are offset by unreported expenses.
Therefore, we conclude that respondent has presented sufficient
evidence that petitioners underpaid their taxes for the years in
issue.
B. Fraudulent Intent
To prove fraud, respondent must establish that petitioners
intended to evade taxes through conduct designed to conceal,
mislead, or otherwise prevent the collection of taxes. Rowlee v.
Commissioner, 80 T.C. 1111, 1123 (1983). Fraudulent intent is
not to be imputed or presumed, but may be established by
circumstantial evidence and reasonable inferences drawn from the
facts. Spies v. United States, 317 U.S. 492, 499 (1943);
Petzoldt v. Commissioner, supra; Stephenson v. Commissioner, 79
T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984). The
mere existence of deficiencies in tax liability does not
establish fraud. Otsuki v. Commissioner, 53 T.C. 96, 106 (1969).
Exceedingly large, unexplained discrepancies between a taxpayer's
actual income and reported income, however, do evidence fraud.
Stone v. Commissioner, 56 T.C. 213, 224 (1971).
Respondent has provided sufficient evidence that petitioners
failed to report V&V gross receipts of $121,289 for 1988 and
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