Linda D. Fason - Page 9

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               The presence of fraud is a question of fact to be resolved             
          upon consideration of the entire record.  See Recklitis v.                  
          Commissioner, supra at 909.  Although fraud is never imputed or             
          presumed, intent to defraud may be proven by circumstantial                 
          evidence.  See Clayton v. Commissioner, supra at 647; Recklitis             
          v. Commissioner, supra at 909-910.                                          
               Here, given our conclusion above regarding the existence of            
          a deficiency, an underpayment of tax has been established.  In              
          addition, through presentation of circumstantial evidence,                  
          respondent has carried the burden of showing that some portion of           
          this underpayment is due to fraud.  Moreover, because petitioner            
          has failed to offer any evidence that some part of the deficiency           
          cannot be attributed to fraud, the section 6663 penalty applies             
          to the entire underpayment.                                                 
               This case reveals a specific fraudulent intent on the part             
          of petitioner to evade tax.  Petitioner neglected to maintain               
          adequate records to substantiate more than $25,000 in deductions.           
          In addition, evidence of intent to defraud is particularly                  
          apparent in the implausibility and inconsistencies surrounding              
          the two documents allegedly offered to validate these deductions.           
          Because testimony at trial indicated that neither document was              
          legitimate, petitioner presented false evidence for purposes of             
          misleading the tax authorities.  Moreover, statements made by               
          petitioner with regard to these documents reveal inconsistent               

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