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(1970). Since direct evidence of fraud rarely is available,
respondent may prove petitioner’s fraud by circumstantial
evidence. Scallen v. Commissioner, 877 F.2d 1364, 1370 (8th Cir.
1989), affg. T.C. Memo. 1987-412; Klassie v. United States, 289
F.2d 96, 101 (8th Cir. 1961).
Conduct that may indicate fraudulent intent, commonly
referred to as “badges of fraud”, includes, but is not limited
to: (1) Understating income; (2) maintaining inadequate records;
(3) giving implausible or inconsistent explanations of behavior,
(4) concealing income or assets, (5) failing to cooperate with
tax authorities, (6) engaging in illegal activities, (7)
providing incomplete or misleading information to one’s tax
preparer, (8) lack of credibility of the taxpayer’s testimony,
(9) filing false documents, including filing false income tax
returns, (10) failing to file tax returns, and (11) dealing in
cash. Spies v. United States, 317 U.S. 492, 499 (1943); Conti v.
Commissioner, 39 F.3d 658, 662 (6th Cir. 1994), affg. and
remanding on other grounds T.C. Memo. 1992-616; Douge v.
Commissioner, 899 F.2d 164, 168 (2d Cir. 1990); Scallen v.
Commissioner, supra; 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). Although no single factor
is necessarily sufficient to establish fraud, a combination of
several factors is persuasive circumstantial evidence of fraud.
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