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due to fraud, we must treat the entire underpayment as
attributable to fraud. Sec. 6663(b).
CFC has the burden of showing by a preponderance of the
evidence that any of respondent’s determinations are erroneous or
that any portion of the underpayment was not attributable to
fraud.29 CFC has failed to meet that burden on all counts. We,
therefore, must hold that the entire underpayment, $554,941, is
attributable to fraud. Sec. 6663(b).
B. Edmund J. Cordes
Respondent determined that the portions of Mr. Cordes’s 1994
and 1995 underpayments attributable to fraud are those portions
representing the unreported constructive dividend and interest
income resulting from Mr. Cordes’s bargain purchase of CFC’s
notes. Again, the burden of proof is on respondent. Respondent
has clearly and convincingly shown that Mr. Cordes has unreported
constructive dividends and interest income giving rise to
29CFC’s only argument that a portion of the underpayment is
not so attributable to fraud was “the taxpayer not only relied on
the advice of his C.P.A. but also on the advice of the Internal
Revenue Service Agent Ken McGee.” (Record cites omitted.) While
reliance on professionals can be a defense to fraud, CFC could
prevail with this defense only if it showed it provided the
professional with complete and accurate information. Korecky v.
Commissioner, 781 F.2d 1566, 1569 (11th Cir. 1986) (quoting
Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962), affg.
T.C. Memo. 1959-172), affg. T.C. Memo. 1985-63. The facts with
which we were presented indicate just the opposite.
CFC did not turn to professionals for any advice, let alone
provide them with complete and accurate information. The only
occasion when CFC (through Mr. Cordes) obtained advice from a
professional was when Mr. Cordes inquired about the deductibility
of losses upon the sale of CFC’s notes. CFC has conceded those
deductions were fraudulently taken.
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