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Cir. 1992). Because direct proof of a taxpayer’s intent is
rarely available, fraud may be proven by circumstantial evidence,
and reasonable inferences may be drawn from the relevant facts.
Spies v. United States, 317 U.S. 492, 499 (1943); Stephenson v.
Commissioner, 79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th
Cir. 1984). Mere suspicion, however, does not prove fraud. Katz
v. Commissioner, 90 T.C. 1130, 1144 (1988).
Courts have developed a nonexclusive list of so-called
badges of fraud which demonstrate fraudulent intent:
(1) Understating income, (2) maintaining inadequate records, (3)
providing implausible or inconsistent explanations of behavior,
(4) concealing income or assets, (5) failing to cooperate with
taxing authorities, (6) engaging in illegal activities, (7)
engaging in a pattern of behavior which indicates an intent to
mislead, (8) testifying with a lack of credibility, (9) filing
false documents, (10) failing to file tax returns, and (11)
dealing in cash. 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 (1988); Middleton v. Commissioner, T.C.
Memo. 2002-164. The sophistication, education, and intelligence
of the taxpayer are relevant in determining fraudulent intent.
Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).
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