- 26 -
199 (1976), affd. without published opinion 578 F.2d 1383 (8th
Cir. 1978).
Direct proof of a taxpayer’s intent is rarely available;
thus, fraud may be proven by circumstantial evidence, and
reasonable inferences may be drawn from the relevant facts. See
Spies v. United States, 317 U.S. 492, 499 (1943); Stephenson v.
Commissioner, 79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th
Cir. 1984). Any conduct, the likely effect of which would be to
mislead or to conceal may establish an affirmative act of
evasion. See Spies v. United States, supra at 499.
The courts have relied upon a number of indicia of fraud in
deciding whether an underpayment of tax is due to fraud. While
no single factor is necessarily sufficient to establish fraud,
the existence of several indicia is persuasive circumstantial
evidence of fraud. See Petzoldt v. Commissioner, supra.
Respondent argues that the following factors or “badges” of
fraud are present in this case: (1) A substantial and consistent
understatement of income; (2) extensive dealings in cash; (3) use
of nominee accounts;40 (4) failure to cooperate with revenue
agents; and (5) petitioner’s level of education.
1. Substantial and Consistent Understatement of
Income
Consistent failure to report substantial amounts of income
40Use of bank accounts fashioned as trust accounts to
conceal assets.
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011