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amount equal to 75 percent of the underpayment which is
attributable to fraud shall be added to the tax. While
respondent ultimately has the burden of proving fraud, it can
seldom be shown by direct proof of the taxpayer’s intention.
Spies v. United States, 317 U.S. 492, 499 (1943). However, fraud
can be established by circumstantial evidence and by reasonable
inferences drawn from the taxpayer’s entire course of conduct.
Id. Such inferences may be drawn from the so-called badges of
fraud including, but not limited to, understated or unreported
income, inadequate records, intentional concealment of income and
assets, and failure to cooperate with taxing authorities.
Bradford v. Commissioner, 796 F.2d 303 (9th Cir. 1986), affg.
T.C. Memo. 1984-601.
Based on the evidence, including the facts established under
Rule 91(f) and the evidence at trial, we find that petitioners
intended to conceal, mislead, or otherwise prevent the collection
of their taxes. Petitioners failed to report a substantial
amount of income. Petitioners concealed two bank accounts with
$513,614 in taxable deposits from their own representative and
respondent. Petitioners kept and maintained inadequate records
which did not reflect all income or expenses. Petitioners
concealed a substantial business activity from their own
representative and from respondent. In an attempt to explain
this concealment, petitioners claimed that the activity had
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