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(9th Cir. 2000). Although we found Vernon and Janet to be
credible witnesses, on the basis of the evidence it was
reasonable for respondent to believe that the Court would find
Vernon and Janet liable for additions to tax and penalties for
fraud.
Petitioners also assert that respondent’s position was not
supported by the law. Specifically, they refer to respondent’s
claim that pursuant to Schneider v. Commissioner, T.C. Memo.
1977-179, unreported income standing alone is sufficient to
establish fraud by clear and convincing evidence.
In Terrell I, we rejected this argument. Although we agree
with petitioners that this particular argument was not supported
by the law, it was not respondent’s primary argument. It was an
alternative argument in case the Court found that none of the
other badges of fraud, other than unreported income, were
present. Respondent went to trial on the basis of the theory
that multiple badges of fraud existed, and at trial he attempted
to prove that multiple badges of fraud were present. Although in
Terrell I, after hearing all the witnesses, evaluating all the
testimony, and on the basis of the entire record, we concluded
that respondent had failed to prove that any of the other badges
of fraud were present, there was some evidence that could have
allowed us to reach the opposite conclusion.
We conclude respondent has established that the position of
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