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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,
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