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petitioners engaged in a pattern of conduct that illustrates their
intent fraudulently to evade payment of Federal income tax.
Petitioners obviously disagree.
Fraud is defined as an intentional act of a taxpayer to evade
the payment of tax that is believed to be owing by conduct that
conceals, misleads, or otherwise prevents the collection of such
tax. See Sadler v. Commissioner, 113 T.C. 99, 102 (1999); McGee v.
Commissioner, 61 T.C. 249, 256 (1973), affd. 519 F.2d 1121 (5th
Cir. 1975); Snavely v. Commissioner, T.C. Memo. 1994-256. The
Commissioner has the burden of proving fraud by clear and
convincing evidence. See sec. 7454(a); Rule 142(b); Rowlee v.
Commissioner, 80 T.C. 1111, 1123 (1983); Beddow v. Commissioner,
T.C. Memo. 1999-232. To satisfy this burden, the Commissioner must
show: (1) That an underpayment exists; and (2) that the taxpayer
intended to evade taxes known to be owing by engaging in conduct
intended to conceal, mislead, or otherwise prevent the collection
of taxes. See Parks v. Commissioner, 94 T.C. 654, 660-661 (1990).
The existence of fraud is a question of fact to be resolved
from the entire record and can be proven by circumstantial
evidence. See Recklitis v. Commissioner, 91 T.C. 874, 909 (1988);
Grosshandler v. Commissioner, 75 T.C. 1, 19 (1980); Gajewski v.
Commissioner, 67 T.C. 181, 199 (1976), affd. 578 F.2d 1383 (1978).
But fraud is not presumed; it is required to be shown through
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