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limited to: (1) Repeated understatements of income over a period
of years, (2) inadequate books and records, (3) implausible or
inconsistent explanations of behavior, (4) concealment of
income or assets, (5) dealing in cash, and (6) engaging in
illegal activities. See Bradford v. Commissioner, supra;
Niedringhaus v. Commissioner, supra at 211. In one manner or
another, petitioner’s course of conduct throughout the years in
issue is described by these badges of fraud.
Petitioner consistently understated his income for the 3
years before us in this case. In 1993, the income he reported on
his Federal income tax return is substantially less than the
income he listed on an application to open an investment account.
Similarly, the gross income that petitioner reported on the
Schedule C included with his 1995 return is substantially less
than the business income he listed on a credit card application.
Petitioner’s principal source of income during the years in
issue was his sole proprietorship, Grand Video. Most of Grand
Video’s rentals and sales were cash transactions. The store had
a cash register, but it was not used to record rental and sales
income. Petitioner did not deposit all of the income from Grand
Video into the business account, and his cash journal does not
record cash income. Petitioner could have tracked Grand Video’s
cash income through the use of the cash register, the business
account, or his cash log, but he elected not to do so. The
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