- 19 -
another in a business transaction; and (9) the taxpayer's
experience and knowledge. See Solomon v. Commissioner, 732 F.2d
1459, 1461-1462 (6th Cir. 1984), affg. per curiam T.C. Memo.
1982-603; see also Kalo v. Commissioner, T.C. Memo. 1996-482,
affd. without published opinion 149 F.3d 1183 (6th Cir. 1998);
Conti v. Commissioner, T.C. Memo. 1992-616, affd. 39 F.3d 658
(6th Cir. 1994); Zack v. Commissioner, T.C. Memo. 1981-700, affd.
692 F.2d 28 (6th Cir. 1982).
Respondent should not pursue litigation of a civil fraud
penalty unless he has a reasonable basis for believing that he
could prove fraud by clear and convincing evidence. See Rutana
v. Commissioner, 88 T.C. 329, 1337-1338 (1987); Don Casey Co. v.
Commissioner, 87 T.C. 847, 862 (1986). In this case, however, we
think it is highly likely that respondent would have successfully
proved Phillip's fraud by clear and convincing evidence. Phillip
engaged in the fraudulent Ponzi scheme, defrauded his clients,
failed to report on his tax returns for multiple years the
substantial income received from that illegal activity, and
failed to keep accurate records. Thus, respondent's position was
substantially justified.
Relief From Joint Liability
In the petition, Cyndie claimed that she was entitled to
relief under section 6015 and should be relieved of liability for
tax attributable to understatements of taxable income by Phillip.
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