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OPINION
Issue 1. Whether Petitioner Is Liable for the Fraud Penalty
Pursuant to Section 6663(a)
Respondent contends that petitioner is liable for the fraud
penalty under section 6663(a) for 1991-94. Section 6663(a)
imposes a penalty in an amount equal to 75 percent of the portion
of any underpayment of tax (required to be shown on a return)
that is attributable to fraud. In addition, if respondent
establishes that any portion of the underpayment is attributable
to fraud, the entire underpayment is treated as attributable
thereto, except to the extent that petitioner establishes
otherwise. Sec. 6663(b).
Respondent bears the burden of proving the applicability of
the civil fraud penalty by clear and convincing evidence. Sec.
7454(a); Rule 142(b). To sustain this burden, respondent must
establish both (1) that there was an underpayment of tax for each
taxable year in issue and (2) that at least some portion of the
underpayment for each year was due to fraud. DiLeo v.
Commissioner, 96 T.C. 858, 873 (1991), affd. 959 F.2d 16 (2d Cir.
1992); Parks v. Commissioner, 94 T.C. 654, 660-661 (1990);
Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).
1. Underpayments of Tax
An underpayment of tax will exist where unreported gross
receipts exceed the costs of goods sold and deductible expenses.
Where the Commissioner provides clear proof of unreported
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