- 33 -
established by clear and convincing evidence. See Beaver
v. Commissioner, 55 T.C. 85, 92 (1970).
Because direct proof of a taxpayer’s fraudulent intent
is rarely available, fraud may be shown by circumstantial
evidence. See Stephenson v. Commissioner, 79 T.C. 995,
1005-1006 (1982), affd. per curiam 748 F.2d 331 (6th Cir.
1984). A taxpayer’s entire course of conduct may establish
the requisite fraudulent intent. See Stone v. Commis-
sioner, 56 T.C. 213, 224 (1971); Otsuki v. Commissioner,
supra at 105-106.
Over the years, courts have developed a nonexclusive
list of factors that demonstrate fraudulent intent. These
badges of fraud include: (1) Understating income, see
Holland v. United States, 348 U.S. at 137; Parks v.
Commissioner, 94 T.C. at 664; (2) inadequate books and
records, see Merritt v. Commissioner, 301 F.2d 484, 487
(5th Cir. 1962), affg. T.C. Memo. 1959-172; (3) false
entries on or alterations of documents, see Spies v.
Commissioner, 317 U.S. 492, 499 (1943); (4) failure to file
tax returns, see id.; (5) implausible or inconsistent
explanations of behavior, see Grosshandler v. Commissioner,
75 T.C. 1, 20 (1980); (6) concealment of income or assets,
see Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.
1986), affg. T.C. Memo. 1984-601; (7) dealing in cash; and
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