- 33 -
it by clear and convincing evidence. See Rule 142(b). Thus, we
do not bootstrap a finding of fraud upon a taxpayer’s failure to
disprove the Commissioner’s deficiency determination. See Parks
v. Commissioner, 94 T.C. 654, 660-661 (1990).
In order to satisfy this burden, respondent must show (1)
that an underpayment exists, and (2) that the taxpayer intended
to evade taxes known to be owing by conduct intended to conceal,
mislead, or otherwise prevent the collection of taxes. See id.
The existence of fraud is a question of fact to be resolved
upon consideration of the entire record. See DiLeo v.
Commissioner, 96 T.C. 858, 874 (1991). Fraud is never presumed
and must be established by independent evidence of fraudulent
intent. See Edelson v. Commissioner, supra. Fraud may be shown
by circumstantial evidence because direct evidence of the
taxpayer’s fraudulent intent is seldom available. See Gajewski
v. Commissioner, 67 T.C. 181, 199 (1976), affd. without published
opinion 578 F.2d 1383 (8th Cir. 1978). The taxpayer’s entire
course of conduct may establish the requisite fraudulent intent.
See Stone v. Commissioner, 56 T.C. 213, 224 (1971).
To decide whether the fraud penalty is applicable, courts
consider several indicia of fraud, or “badges of fraud”, which
include: (1) Understatement of income; (2) inadequate books and
records; (3) failure to file tax returns; (4) implausible or
inconsistent explanations of behavior; (5) concealment of assets;
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011