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and reasonable inferences may be drawn from the relevant facts.
See Spies v. United States, 317 U.S. 492, 499 (1943); Stephenson
v. Commissioner, 79 T.C. 995, 1006 (1982), affd. 748 F.2d 331
(6th Cir. 1984). Mere suspicion, however, does not prove fraud.
See Cirillo v. Commissioner, 314 F.2d 478, 482 (3d Cir. 1963),
affg. in part and revg. in part T.C. Memo. 1961-192; Katz v.
Commissioner, 90 T.C. 1130, 1144 (1988); Shaw v. Commissioner, 27
T.C. 561, 569-570 (1956), affd. 252 F.2d 681 (6th Cir. 1958).
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) implausible or inconsistent explanations
of behavior, (4) concealment of income or assets, (5) failing to
cooperate with tax authorities, (6) engaging in illegal
activities, (7) an intent to mislead which may be inferred from a
pattern of conduct, (8) lack of credibility of the taxpayer's
testimony, (9) filing false documents, (10) failing to file tax
returns, and (11) dealing in cash. See Spies v. United States,
supra at 499; Douge v. Commissioner, 899 F.2d 164, 168 (2d Cir.
1990); Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir.
1986), affg. T.C. Memo. 1984-601; Recklitis v. Commissioner, 91
T.C. 874, 910 (1988). Although no single factor is necessarily
sufficient to establish fraud, the combination of a number of
factors constitutes persuasive evidence. See Solomon v.
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