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except to the extent petitioners establish otherwise. See sec.
6653(b)(2). To establish fraud, respondent must show that
petitioners "engaged in conduct with the intent to evade taxes
that * * * [they] knew or believed to be owing." United States
v. Walton, 909 F.2d 915, 926 (6th Cir. 1990). Direct evidence of
fraud is seldom available. See Petzoldt v. Commissioner, 92 T.C.
661, 699 (1989); Rowlee v. Commissioner, 80 T.C. 1111, 1123
(1983). Consequently, we may rely on circumstantial evidence to
establish fraud. See United States v. Walton, supra; see also
Hagaman v. Commissioner, supra at 696. Fraud may be inferred
from "any conduct, the likely effect of which would be to mislead
or to conceal." Spies v. United States, 317 U.S. 492, 499
(1943). The taxpayer’s background, including his sophistication,
experience and education, and the context of the events in
question may be considered circumstantial evidence of fraud. See
Solomon v. Commissioner, 732 F.2d 1459, 1461-1462 (6th Cir.
1984), affg. per curiam T.C. Memo. 1982-603; Plunkett v.
Commissioner, 465 F.2d 299, 303 (7th Cir. 1972), affg. T.C. Memo.
1970-274; Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).
The courts have established several indicia or "badges" of
fraud which include: (1) Understating income; (2) maintaining
inadequate records; (3) giving implausible or inconsistent
explanations of behavior, (4) concealment of income or assets,
(5) failing to cooperate with tax authorities, (6) engaging in
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