- 35 -
As discussed above, we found that Crabtree
Investments, Ms. Jerry Crabtree, and Mr. Eddie Crabtree
each understated income in 1992, 1993, and 1994. We agree
that a large understatement may, in an appropriate case,
suggest fraudulent intent. In cases such as those in
issue, in which deficiencies were determined using an
indirect method of proof and sustained on the basis of
petitioners’ failure to disprove such determinations,
the existence of underpayments, standing alone, is
insufficient to support a finding of fraud. See Kashat v.
Commissioner, 229 F.2d 282, 285 (6th Cir. 1956), revg. a
Memorandum Opinion of this Court dated March 29, 1954;
Drieborg v. Commissioner, 225 F.2d 216, 218 (6th Cir. 1955)
affg. in part and revg. in part a Memorandum Opinion of
this Court dated February 24, 1954); Otsuki v. Commis-
sioner, 53 T.C. 96 (1969); Christensen v. Commissioner,
T.C. Memo. 1982-672; cf. Mazzoni v. Commissioner, T.C.
Memo. 1970-37 (refusing to pile “inference upon inference”
by basing fraud exclusively on unreported income
established by the net worth method of reconstructing
income), affd. 451 F.2d 197 (3d Cir. 1971). This is
particularly true in cases such as these where there is
no evidence that the taxpayers actually received any of
the unreported income computed using an indirect method.
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