Compact Equipment Company - Page 15

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          tax returns and that they are liable for the fraud additions to             
          tax with respect to the construction expenses.  The Atkinsons               
          also concede that they failed to report the credit card charges             
          as income.  Still before us, however, is the issue of whether the           
          fraud additions to tax with regard to the credit card charges               
          should be sustained and whether the Atkinsons are liable for the            
          addition to tax pursuant to section 6661.                                   

          I.   Corporate Fraud                                                        
               Generally, pursuant to section 6501(a), the Commissioner               
          must assess taxes owed and due on a tax return within 3 years               
          after the return is filed.  Section 6501(c)(1), however, provides           
          that if a taxpayer fraudulently files a return, the 3-year                  
          statute of limitations under section 6501(a) will not bar the               
          Commissioner from assessing and collecting the taxes owed and               
          due.   Additionally, if any part of an underpayment of tax is due           
          to fraud, the Commissioner may impose fraud additions to tax                
          under section 6653(b)(1) and (2).10                                         
               In order to prove fraud, the Commissioner must show by clear           
          and convincing evidence that the taxpayer underpaid its tax and             

               10  Sec. 6653(b)(1) provides for an addition to tax in the             
          amount of 50 percent of the underpayment if any part of the                 
          underpayment is due to fraud.  Sec. 6653(b)(2) provides for an              
          addition to tax in the amount of 50 percent of the interest                 
          payable under sec. 6601 with respect to the portion of the                  
          underpayment which is attributable to fraud.                                

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Last modified: May 25, 2011