-20-
penalty of 75 percent of the portion of an underpayment that is
attributable to fraud. In order for the Court to sustain
respondent’s determination as to the applicability of these
penalties to the Les, respondent must prove by clear and
convincing evidence: (1) The Les underpaid their taxes for 1990
and 1991, and (2) some part of each underpayment was due to
fraud. Once respondent has met this burden, we consider all of
the underpayment to be attributable to fraud unless petitioners
establish otherwise. Sec. 6663(b).
On the basis of our review of the record, we conclude that
respondent has proven the first prong of the two-part test. The
record establishes clearly and convincingly that petitioners
failed to include the distributions in their 1990 and 1991 gross
income. We conclude that respondent has proven that petitioners
underpaid their Federal income taxes for both 1990 and 1991.
As to the second prong of the test; i.e., the presence of
fraud, the existence of fraud is a question of fact. Gajewski v.
Commissioner, 67 T.C. 181, 199 (1976), affd. without published
opinion 578 F.2d 1383 (8th Cir. 1978). Fraud is never presumed
or imputed; it must be established by independent evidence that
establishes a fraudulent intent on the taxpayer’s part. Otsuki
v. Commissioner, 53 T.C. 96 (1969). Because direct proof of a
taxpayer’s intent is rarely available, fraud may be proven by
circumstantial evidence and reasonable inferences may be drawn
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011