- 45 -
102 T.C. 632, 647 (1994). These “badges of fraud” are
nonexclusive. Miller v. Commissioner, 94 T.C. 316, 334 (1990).
The taxpayer’s background and the context of the events in
question may be considered as circumstantial evidence of fraud.
Plunkett v. Commissioner, 465 F.2d 299, 303 (7th Cir. 1972)
(citing Gano v. Commissioner, 19 B.T.A. 518, 532-533 (1930)),
affg. T.C. Memo. 1970-274.
Respondent has clearly and convincingly shown that Mr.
Cordes intended to evade tax known to be owing by concealing,
misleading, and otherwise preventing the collection of taxes, and
Mr. Cordes is therefore liable for the fraud penalty for 1994 and
1995. We rely on the following facts in reaching our conclusion:
(1) Respondent demonstrated that Mr. Cordes consistently
over a period of several years substantially understated his
income by not reporting the constructive dividends or interest
income earned. Clayton v. Commissioner, supra at 647; see also
Steines v. Commissioner, T.C. Memo. 1995-261. While this
consistent underreporting alone is not enough to establish fraud,
other badges of fraud are present here that make it clear Mr.
Cordes’s behavior was fraudulent.
(2) Mr. Cordes repeatedly failed to cooperate with tax
authorities. Regarding Mr. Cordes’s 1994 taxable year, the
revenue agent assigned to the case, Ken McGee, requested from Mr.
Cordes and CFC, which Mr. Cordes controlled, documents (such as
the loan ledger cards) which relate to the constructive dividends
and the interest income. Mr. Cordes refused to provide the
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