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affirmative evidence. See Beaver v. Commissioner, 55 T.C. 85, 92
(1970).
Courts have developed various factors or badges which tend to
establish fraud. These include: (1) A pattern of understatement
of income; (2) inadequate records; (3) concealment of assets; (4)
income from illegal activities; (5) attempting to conceal illegal
activities; (6) implausible or inconsistent explanations of
behavior; and (7) dealings in cash. See McGee v. Commissioner,
supra at 260; Snavely v. Commissioner, supra. In addition, the
taxpayer’s sophistication, education, and intelligence may also be
considered in determining the existence of fraud. See Sadler v.
Commissioner, supra. No single factor or any combination of
factors will necessarily lead us to the conclusion that fraud
exists. We must examine whether a pattern of fraudulent intent was
established on the basis of an examination of the entire record.
Respondent argues that the record is replete with indicia of
fraud by petitioners, including the following: (1) Gross
undervaluation of the 1989 and 1990 stock bonus awards; (2) the
hiding of the animal trophy collection expenditures by recording
them in different accounts in the company’s general ledger at the
direction of Dr. Gow; (3) lack of petitioners’ credibility in
statements made both at audit and at trial; and (4) charging of
personal items as business expenses. Moreover, respondent claims
that petitioners’ knowledge of tax and accounting issues supports
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