- 30 -
of income; (3) maintenance of inadequate records; (4) implausible
or inconsistent explanations of behavior; (5) concealment of
assets; (6) failure to cooperate with tax authorities; (7)
engaging in an illegal activity; (8) attempting to conceal such
activity; (9) dealing in cash; and (10) failing to make estimated
tax payments. See Bradford v. Commissioner, 796 F.2d 303, 307
(9th Cir. 1986), affg. T.C. Memo. 1984-601; Petzoldt v.
Commissioner, 92 T.C. 661, 700 (1989).
On the basis of our review of the entire record, we hold
that respondent has met his burden of proving fraud. As
previously discussed, respondent's reconstruction of petitioner's
income for the years in issue reveals that petitioner underpaid
his taxes for 1988, 1989, 1990, and 1991. Further, each such
underpayment was attributable to fraud. Petitioner engaged in
illegal drug sales, established a clear pattern of underreporting
taxable income from 1988 through 1991, failed to maintain
adequate records of his income, and engaged in substantial cash
transactions. In sum, petitioner's conduct supports a
particularly strong inference of fraud. See Parks v.
Commissioner, supra at 664. Equally significant, petitioner
pleaded guilty to criminal tax evasion for 1991. See Petzoldt v.
Commissioner, supra at 701-702. Considering all the facts and
circumstances, we hold that petitioner is liable for the addition
to tax for fraud for 1988 and the fraud penalty for 1989, 1990,
and 1991.
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011