- 9 - For the same respective years, respondent determined, using the bank deposits and cash expenditures method, that petitioners had unreported income of $57,106 and $35,957. Petitioners now concede they had unreported income in these amounts, the source of which was cash proceeds from Cedar Hill’s operations not deposited into Cedar Hill’s bank accounts but instead retained by petitioners. Thus, petitioners received from Cedar Hill a total of $82,106 and $65,957 during 1987 and 1988, respectively, while reporting as income only $25,000 and $30,000, respectively, from that source. Respondent determined in addition that the underpayments resulting from the unreported income in each year at issue were due to fraud and that there was a substantial understatement of tax in each year within the meaning of section 6661(a). Petitioners dispute these determinations. OPINION 1. Fraud The existence of fraud is a question of fact. See Hagaman v. Commissioner, 958 F.2d 684, 696 (6th Cir. 1992), affg. and remanding on other grounds T.C. Memo. 1987-549. Respondent has the burden of proving fraud by clear and convincing evidence. See sec. 7454(a); Rule 142(b). If respondent establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud,Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011