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A. Cordes Finance Corp.
In 1997, respondent and CFC executed a partial agreement,
Form CG-4549, wherein CFC conceded it underpaid taxes in the
amount of $226,31626 for 1994 and that $226,069 of that
underpayment was attributable to fraud. Respondent later issued
a notice of deficiency to CFC in which respondent determined CFC
underpaid taxes for 1994 in the amount of $554,941 ($226,316 as
agreed; $328,625 in additional deficiencies) and that the entire
underpayment was attributable to fraud. Consequently, respondent
determined CFC’s fraud penalty for 1994 was $246,654 more than
the parties had previously agreed.27 CFC disputes this increased
fraud penalty.28
Respondent’s determinations are typically entitled to a
presumption of correctness. When respondent alleges fraud,
however, respondent must prove by clear and convincing evidence
26CFC conceded an underpayment of taxes of $226,316 for 1994
based on adjustments to CFC’s bad debt expenses, bad debts
charged to income, and interest expenses to John Cordes, Inc.
27Respondent argued in his opening brief that the only issue
with regard to CFC’s liability for fraud is the computation of
the fraud penalties under the ordering rules of sec. 1.6664-3,
Income Tax Regs. Petitioner, however, does not appear to dispute
respondent’s calculation of the fraud penalties. Petitioner
disputes only the underlying deficiencies.
28The parties’ partial agreement also included a concession
by CFC to an underpayment and a fraud penalty for CFC’s 1995
taxable year. Respondent later determined in his notice of
deficiency that the fraud penalty for 1995 was less than the
parties had previously agreed, and CFC has not disputed that
determination. We therefore need not address the fraud issue
with respect to CFC’s 1995 taxable year.
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