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illegal activities; (8) attempting to conceal illegal activities;
(9) dealing in cash; and (10) failing to make estimated tax
payments. While no single factor is necessarily sufficient to
establish fraud, the existence of several indicia constitutes
persuasive circumstantial evidence. See Bradford v.
Commissioner, supra at 303.
Many of the foregoing badges of fraud are present.
Petitioner's substantial understatement of income tax from the
omission of the embezzlement income in 1992, 1993, and 1994 is a
badge of fraud. As conclusively established in the criminal
case, petitioner knew that the funds he received from Mrs.
Millyard were not gifts. Petitioners have stipulated that
petitioner received embezzlement income. Moreover, petitioners
stipulated that they did not report this embezzlement income on
their tax returns. Petitioner understated his income in the
years in issue by 36 percent, 24 percent, and 60 percent,
respectively. Such a pattern of substantial discrepancies
between petitioner's actual income and reported income
constitutes evidence of intent to defraud. See Kohrs v.
Commissioner, T.C. Memo. 1985-115.
Failure to keep records is another badge of fraud. See
Truesdell v. Commissioner, 89 T.C. 1280, 1302 (1987). Petitioner
did not keep any records of the amounts he embezzled.
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