Terrell Equipment Company, Inc., et al. - Page 16

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          the burden cast upon the Commissioner in seeking to recover fraud           
          penalties.”  Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir.           
          1962), affg. T.C. Memo. 1959-172.  Additionally, the Court of               
          Appeals has held that even a consistent and substantial                     
          understatement of income is insufficient, by itself, to support a           
          finding of fraud.  Loftin & Woodard, Inc. v. United States, 577             
          F.2d 1206, 1239 (5th Cir. 1978).                                            
               Respondent agrees that these cases are still good law in the           
          Fifth Circuit.  We are left, however, with nothing more than the            
          possibility that petitioners understated their income.8  On this            
          record, we are not persuaded that the evidence establishes fraud            
          on the part of petitioners.  Id.; Merritt v. Commissioner,                  
          supra at 487.                                                               
               After reviewing all of the facts and circumstances, we                 
          conclude that respondent has failed to sustain his heavy burden             
          of proving by clear and convincing evidence that Vernon, Janet,             
          or TECO intended to evade taxes known to be owing by conduct                
          intended to conceal, mislead, or otherwise prevent the collection           
          of taxes for any of the years in issue.  Accordingly, we do not             
          sustain any of the additions to tax or penalties for fraud.                 

               8  “A taxpayer who honestly but erroneously claims a                   
          deduction or fails to declare income is not liable for fraud.”              
          Loftin & Woodard, Inc. v. United States, 577 F.2d 1206, 1238                
          n.72 (5th Cir. 1978).                                                       

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