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fraudulent return with the intent to evade tax, the tax may be
assessed, or a proceeding in court for collection of such tax may
be begun without assessment, at any time."
Where respondent asserts that a taxpayer has filed a
fraudulent return with the intent to evade tax, the burden of
proof is on the respondent. Sec. 7454(a); Rule 142(b).
Respondent must satisfy his burden of proof with "clear and
convincing evidence". Rule 142(b); Fox v. Commissioner, 61 T.C.
704, 717 (1974). To establish fraud, respondent must prove, by
clear and convincing evidence, for each year and with respect to
each petitioner, that: "(1) petitioner underpaid his income tax
and (2) some part of the underpayment was due to fraud."
Recklitis v. Commissioner, 91 T.C. 874, 909 (1988) (citations
omitted); see also Hebrank v. Commissioner, 81 T.C. 640, 642
(1983).
Although respondent need not prove the precise amount of the
underpayment resulting from fraud, respondent may not carry his
burden by merely relying on a taxpayer's failure to carry the
burden of proof on the underlying deficiency. DiLeo v.
Commissioner, 96 T.C. 858, 873 (1991), affd. 959 F.2d 16 (2d Cir.
1992); Otsuki v. Commissioner, 53 T.C. 96, 106 (1969).
A. Underreporting of Tax
Respondent asserts that petitioners had unreported income
arising from the checks issued by J.C. Penney for delivery
services rendered by AJF to Custom Decorating and fuel
reimbursements for fuel expenses incurred by AJF.
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