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Rule 142(b). To satisfy this burden, the Commissioner must show:
(1) An underpayment exists; and (2) the taxpayer intended to
evade taxes known to be owing by conduct intended to conceal,
mislead, or otherwise prevent the collection of taxes. Parks v.
Commissioner, 94 T.C. 654, 660-661 (1990). The Commissioner must
meet this burden through affirmative evidence because fraud is
never imputed or presumed. Beaver v. Commissioner, 55 T.C. 85,
92 (1970).
Over the years, courts have developed a nonexclusive list of
factors that demonstrate fraudulent intent. These badges of
fraud include: (1) Understating income, (2) maintaining
inadequate records, (3) implausible or inconsistent explanations
of behavior, (4) concealment of income or assets, (5) failing to
cooperate with tax authorities, (6) engaging in illegal
activities, (7) an intent to mislead which may be inferred from a
pattern of conduct, (8) lack of credibility of the taxpayer's
testimony, (9) filing false documents, (10) failing to file tax
returns, and (11) dealing in cash. Spies v. United States, 317
U.S. 492, 499 (1943); Douge v. Commissioner, 899 F.2d 164, 168
(2d Cir. 1990); Bradford v. Commissioner, 796 F.2d 303, 307-308
(9th Cir. 1986), affg. T.C. Memo. 1984-601; Recklitis v.
Commissioner, 91 T.C. 874, 910 (1988). Mere suspicion, however,
does not prove fraud. Katz v. Commissioner, 90 T.C. 1130, 1144
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