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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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