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34 (3d Cir. 1956). We have made a finding of fact to that
effect. Except for 1990, our finding that Frank and Katherine
had $30,000 cash on hand as of January 1, 1983, does not affect
respondent’s source and application of funds analyses for the
years in issue because we also have found that the amount of cash
on hand at the beginning and end of each year in issue remained
approximately the same. Thus, since there was no net change in
the amount of cash on hand at the beginning and end of any year
in issue, that cash, in effect, constitutes neither a source nor
an application of funds for any year. See infra section I
C(7)(d) of the Opinion, however, where we discuss the effect of
our finding regarding the $30,000 cash on hand on the source and
application of funds analysis for 1990.
On the basis of the foregoing, we conclude that respondent
has established that petitioners did not utilize funds from a
nontaxable source to finance the excess applications of funds
over sources of funds for any year in issue. Consequently,
respondent has negated petitioners’ claim of a nontaxable source
for the income.
(3) Summary Relating to Existence of an Underpayment
To establish an underpayment of tax for purposes of fraud
penalties and additions to tax for fraud, respondent had to prove
an understatement of income and either establish a likely source
for that income or negate nontaxable sources for the income. See
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