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Section 6663(a) provides that, if any part of an
underpayment is due to fraud, there shall be added to the
tax an amount equal to 75 percent of the portion of the
underpayment which is attributable to fraud. The
Commissioner bears the burden of proving by clear and
convincing evidence that: (1) An underpayment exists;
and (2) some portion of the underpayment is attributable
to fraud. See sec. 7454(a); Rule 142(b); DiLeo v.
Commissioner, 96 T.C. 858, 873 (1991), affd. 959 F.2d 16
(2d Cir. 1992). The term “underpayment” is defined in
section 6664(a) as “the amount by which any tax imposed by
this title exceeds the excess of (1) the sum of (A) the
amount shown as the tax by the taxpayer on his return, plus
(B) amounts not so shown previously assessed (or collected
without assessment), over (2) the amount of rebates made.”
The Commissioner must establish that the taxpayer is guilty
of fraud with respect to his or her return for each taxable
year. E.g., Otsuki v. Commissioner, 53 T.C. 96, 105
(1969); AJF Transp. Consultants, Inc. v. Commissioner, T.C.
Memo. 1999-16. If the Commissioner establishes that any
portion of the underpayment is attributable to fraud, then
the entire underpayment is treated as attributable to
fraud, unless the taxpayer establishes by a preponderance
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