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For both years, if the Secretary establishes that any portion of
an underpayment is attributable to fraud, the entire underpayment
is attributable to fraud, except with respect to any portion of
the underpayment that the taxpayer establishes is not
attributable to fraud. See sec. 6653(b)(2). Respondent has the
burden of proving fraud by clear and convincing evidence. Sec.
7454(a); Rule 142(b). To prove that a taxpayer fraudulently
underpaid a dollar of tax, respondent must prove both the fact of
the underpayment and fraudulent intent with respect thereto.
See, e.g., Recklitis v. Commissioner, 91 T.C. 874, 909 (1988).
B. Existence of an Underpayment
The first inquiry is whether any underpayment exists. As
relevant to this case, section 6653(c)(1) defines an
“underpayment” for purposes of section 6653 as a “deficiency”
defined under section 6211. Petitioners filed amended returns
for 1987 and 1988, the Forms 1040X, showing additional taxes due.
Each of petitioners’ amended returns is an admission of a tax
underpayment. See Badaracco v. Commissioner, 464 U.S. 386, 399
(1984). Respondent has satisfied the first prong of the test.
C. Fraudulent Intent
1. Introduction
The second inquiry concerns the taxpayer’s state of mind.
The existence of a fraudulent state of mind is a question
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