- 26 -
dispositive effect has been pointed out by this court * * *. As
was made clear * * *, the taxpayer’s failure to overcome the
presumptive correctness of deficiencies in reported income even
over a period of consecutive years does not of itself create a
presumption of fraud." Hawkins v. Commissioner, 234 F.2d 359,
360 (6th Cir. 1956), affg. in part, revg. in part, and remanding
T.C. Memo. 1955-110.
Respondent asserts that the fraud penalty is properly
imposed on petitioner based upon circumstantial evidence in the
form of several generally accepted indices, or "badges", of
fraud. Respondent first urges that the asserted understatements
of income of $152,495 in 1993 and $139,540 in 1995 justify an
inference of fraud.10 Although systematic understatements of
income over an extended time can be persuasive evidence of fraud,
see, e.g., Solomon v. Commissioner, 732 F.2d 1459, 1461 (6th Cir.
1984), affg. T.C. Memo. 1982-603, such understatements may also
be consistent with negligence or a even a mistaken view of the
law. See Carr v. Commissioner, T.C. Memo. 1978-408.
Respondent urges that petitioner’s bookkeeping practices are
evidence of fraudulent intent. We strongly suspect that
petitioner’s hybrid-pooling method of tracking income falls short
of generally accepted accounting principles. Petitioner,
10 According to respondent’s analysis, petitioners actually
overstated their 1994 income-–a circumstance inconsistent with
fraud.
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