Terrell Equipment Company, Inc., et al. - Page 15

                                       - 15 -                                         
          petitioners filed false documents.  Thus, the only badge left is            
          understating income.                                                        
          Relying Solely on an Understatement of Income To Establish Fraud            
               Respondent argues that he can establish fraud by relying               
          solely on an understatement of income.  Respondent cites                    
          Schneider v. Commissioner, T.C. Memo. 1977-179, for the                     
          proposition that substantial amounts of unreported income over a            
          period of years, without more, are sufficient evidence to                   
          establish fraud by clear and convincing evidence when the case is           
          based on the specific items method of proof.  Respondent is                 
               In Schneider, Mr. Schneider pleaded guilty to filing a false           
          and fraudulent income tax return for one of the years in issue in           
          that case.  Additionally, Mr. Schneider converted income omitted            
          from his returns to cash.  Thus, in Schneider, we did not base              
          our finding of fraud solely on an understatement of income.  The            
          criminal tax conviction (which established that the taxpayer                
          filed false documents) and the conversion of omitted income to              
          cash further supported our conclusion that Mr. Schneider’s                  
          actions were fraudulent.                                                    
               The U.S. Court of Appeals for the Fifth Circuit, to which an           
          appeal in this case would lie, has held that “The mere                      
          understatement of income, standing alone, is not enough to carry            

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  Next

Last modified: May 25, 2011