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We begin our analysis with the first prong of section
6653(b)(1); i.e., whether Mr. Feinsmith underpaid his taxes in
1983 and/or 1984. Mr. Feinsmith amended his personal income tax
returns for both of those years to report additional income.
Because those amended returns are admissions of tax
underpayments, Badaracco v. Commissioner, 464 U.S. 386, 399
(1984), we hold for respondent as to this prong.
Turning to the second prong of section 6653(b)(1), i.e., the
presence of fraud, the existence of fraud is a question of fact.
Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), affd. without
published opinion 578 F.3d 1383 (8th Cir. 1978). Fraud is never
presumed or imputed; it must be established by independent
evidence that establishes a fraudulent intent on the taxpayer's
part. Otsuki v. Commissioner, 53 T.C. 96 (1969). Because direct
proof of a taxpayer's intent is rarely available, fraud may be
proven by circumstantial evidence, and reasonable inferences may
be drawn from the relevant facts. Spies v. United States,
317 U.S. 492 (1943); Stephenson v. Commissioner, 79 T.C. 995
(1982), affd. 748 F.2d 331 (6th Cir. 1984).
We often rely on certain indicia of fraud to decide the
existence of fraud. The presence of several indicia is
persuasive circumstantial evidence of fraud. Beaver v.
Commissioner, 55 T.C. 85, 93 (1970). The "badges of fraud"
include: (1) The filing of false documents, (2) understatement
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