- 16 -
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.
Conclusion
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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