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Respondent has shown that E&A of IL had sufficient earnings
and profits during the years in issue to account for all of
petitioner's unreported income in those years. Petitioner has
presented no evidence to the contrary.
We conclude that respondent has established by clear and
convincing evidence an underpayment of tax for 1980, 1981, and
1982.
B. Fraudulent Intent
Respondent must also show that for each of the years in
issue the taxpayer intended to evade taxes known to be owing by
conduct intended to conceal, mislead, or otherwise prevent the
collection of taxes. See Parks v. Commissioner, 94 T.C. at 661;
Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).
Because direct proof of a taxpayer's intent is rarely
available, fraud may be proven by circumstantial evidence and
reasonable inferences may be drawn from relevant facts. See
Spies v. United States, 317 U.S. 492, 499 (1943). Over the
years, courts have developed a nonexclusive list of factors that
demonstrate fraudulent intent. These badges of fraud include:
(1) Understating income, (2) maintaining inadequate records, (3)
failing to cooperate with tax authorities, (4) an intent to
mislead which may be inferred from a pattern of conduct, (5)
filing false documents, (6) failing to file tax returns, and (7)
dealing in cash. See id.
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