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because (1) petitioners did not act with the requisite fraudulent
intent, and (2) reasonable cause supported their actions.
We agree with respondent’s conclusions and most of
respondent’s contentions.
When respondent seeks to impose the addition to tax under
section 66635, respondent has the burden of proof. To carry this
burden for a year, respondent must prove two elements, as
follows: (1) That petitioners have an underpayment of tax for
that year, and (2) that some part of that underpayment is due to
fraud. See sec. 7454(a)6; Rule 142(b); see, e.g., Carter v.
5SEC. 6663. IMPOSITION OF FRAUD PENALTY.
(a) Imposition of Penalty.--If any part of any
underpayment of tax required to be shown on a return is due
to fraud, there shall be added to the tax an amount equal to
75 percent of the portion of the underpayment which is
attributable to fraud.
(b) Determination of Portion Attributable to Fraud.--
If the Secretary establishes that any portion of an
underpayment is attributable to fraud, the entire
underpayment shall be treated as attributable to fraud,
except with respect to any portion of the underpayment which
the taxpayer establishes (by a preponderance of the
evidence) is not attributable to fraud.
(c) Special Rule for Joint Returns.--In the case of a
joint return, this section shall not apply with respect to a
spouse unless some part of the underpayment is due to the
fraud of such spouse.
6SEC. 7454. BURDEN OF PROOF IN FRAUD, FOUNDATION
MANAGER, AND TRANSFEREE CASES.
(a) Fraud.--In any proceeding involving the issue
whether the petitioner has been guilty of fraud with intent
(continued...)
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