- 13 -
the first prong of the above test either by proving a likely
taxable source for alleged unreported income or, where the
taxpayer asserts a nontaxable source, by disproving the
nontaxable source. United States v. Massei, 355 U.S. 595, 595
(1958); Holland v. United States, 348 U.S. 121, 137-138 (1954);
DiLeo v. Commissioner, supra at 873-874. The Commissioner may
not, however, simply rely on the taxpayer’s failure to prove
error in the deficiency determination. DiLeo v. Commissioner,
supra at 873; Otsuki v. Commissioner, 53 T.C. 96, 106 (1969).
Here, the evidence clearly establishes cash sales made by
ARF as a likely source of unreported income. Furthermore,
petitioner has at no time alleged nontaxable sources in an amount
sufficient to negate the purported unreported income, and
respondent’s bank deposits analysis took into account nontaxable
transfers and loans in excess of $66,000. The record thus
contains clear and convincing proof that petitioner underpaid his
income taxes for the 1993 and 1994 taxable years.
B. Fraudulent Intent
The second prong of the fraud test requires respondent to
show that a portion of the foregoing underpayment is attributable
to fraud. Fraud for this purpose is defined as intentional
wrongdoing on the part of the taxpayer, with the specific purpose
of avoiding a tax believed to be owed. Stoltzfus v. United
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011