Simco Automotive Pump Co., Inc. - Page 18




                                       - 18 -                                         

          Fraud of John                                                               
               Fraud exists if “any part of any underpayment of tax                   
          required to be shown on a return is due to fraud”.  Sec. 6663(a).           
          John filed amended tax returns for each of the tax years 1989-              
          1991 showing increases in tax owed, effectively conceding that              
          there was an underpayment in each year.  Thus, we must decide               
          whether any portion of each underpayment was due to fraud.                  
               The existence of fraud is a question of fact.  See Hagaman             
          v. Commissioner, 958 F.2d 684, 696 (6th Cir. 1992), affg. and               
          remanding on other grounds T.C. Memo. 1987-549.  Respondent has             
          the burden of proof to show fraud by clear and convincing                   
          evidence.  See sec. 7454(a); Rule 142(b).  To establish fraud,              
          respondent must show that the taxpayer “engaged in conduct with             
          the intent to evade taxes that he knew or believed to be owing.”            
          United States v. Walton, 909 F.2d 915, 926 (6th Cir. 1990).  We             
          may rely on circumstantial evidence to establish fraud.  See id.            
          Fraud may be inferred from “any conduct, the likely effect of               
          which would be to mislead or to conceal.”  Spies v. United                  
          States, 317 U.S. 492, 499 (1943).                                           
               John engaged in much conduct that was likely to mislead or             
          conceal.  He engaged in a consistent pattern of underreporting              
          income.  See Holland v. United States, 348 U.S. 121, 137 (1954).            
          He diverted corporate funds for his own use and concealed the               
          diversion from his brother, the other 50-percent shareholder of             





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