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2. Intent To Defraud
We now turn to whether Mr. Sowards’s failure to report
income was an effort to fraudulently evade his tax liability.
“Fraud is the intentional wrongdoing on the part of a taxpayer to
evade a tax believed to be owing.” Temple v. Commissioner,
supra; see DiLeo v. Commissioner, supra at 874; Profl. Servs. v.
Commissioner, 79 T.C. 888, 930 (1982). “The required state of
mind is one which, ‘if translated into action, is well calculated
to cheat or deceive the government.’” Zell v. Commissioner, 763
F.2d 1139, 1143 (10th Cir. 1985) (quoting 10 Mertens, Law of
Federal Income Taxation, sec. 55.10, at 46 (1984)), affg. T.C.
Memo. 1984-152. A taxpayer’s background and the context of the
events in question may be considered in determining fraudulent
intent. Plunkett v. Commissioner, 465 F.2d 299 (7th Cir. 1972),
affg. T.C. Memo. 1970-274. Furthermore, a taxpayer’s level of
education is relevant to the inquiry. Temple v. Commissioner,
supra.
Because it is difficult to prove fraudulent intent by direct
evidence, fraud can be inferred from various kinds of
circumstantial evidence. Courts describe these “badges of fraud”
as including the following: (1) Understatement of income; (2)
failing to maintain adequate records; (3) failure to file tax
returns; (4) implausible or inconsistent explanations; (5)
concealment of assets; (6) failure to cooperate with tax
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