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books and records, see Merritt v. Commissioner, 301 F.2d
484, 487 (5th Cir. 1962), affg. T.C. Memo. 1959-172; (3)
false entries on or alterations of documents, see Spies v.
United States, 317 U.S. 492, 499 (1943); (4) failure to
file tax returns, see id.; (5) implausible or inconsistent
explanations of behavior, see Grosshandler v. Commissioner,
75 T.C. 1, 20 (1980); (6) concealment of income or assets,
see Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.
1986), affg. T.C. Memo. 1984-601; (7) dealing in cash; and
(8) failure to cooperate with tax authorities, see id. at
307-308.
Respondent argues that Mr. Vetrano’s conduct exhibit
the following badges of fraud:
Vetrano engaged in a 3-year pattern of under-
stating income. He took steps to cover up the
source of his income. He dealt in cash to avoid
scrutiny of his finances. He structured his
affairs to avoid making records the effect of
which was to mislead or conceal. He failed to
keep adequate and accurate records. Not only did
Vetrano fail to cooperate with tax authorities in
computing his correct income, he deliberately
misled the examining agent by having his
representative supply a false list of suppliers
to him. He willingly defrauded others and was
dishonest in business and personal transactions,
particularly with respect to statements made in
the New Jersey court which was adjudicating his
divorce from Teresa Vetrano. He possessed
sufficient education and knowledge of his duty to
report income. He provided implausible and false
explanations, such as that he was not in the auto
parts business but was a bricklayer, when he
admittedly had earned no income from 1991 through
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