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Fraud Penalty
In his determinations, respondent asserted fraud penalties.
Although the record discloses what could be construed as “badges
of fraud,” see Bradford v. Commissioner, 796 F.2d 303, 307 (9th
Cir. 1986), affg. T.C. Memo. 1984-601, we are not convinced that
respondent has carried his heavy burden of proving fraud by clear
and convincing evidence, Gow v. Commissioner, T.C. Memo. 2000-93
(“even where there is a strong suspicion of an intent to evade
taxes, we are hesitant to impose the section 6663(a) penalty
unless we are convinced that the Commissioner satisfied his
burden of proof”). The record contains evidence that the
inaccuracies and the inconsistencies in petitioners’ returns may
have been a result of extraordinary circumstances, albeit many
times at the hands of Burton himself. For example, petitioners’
long-time accountant and return preparer died just prior to the
years at issue. A new accountant/return preparer was engaged
years later and inherited a poorly administered accounting
system. There were few records from which the financial history
of the entities could be reconstructed. Apparently, a
significant amount of work was performed to get the books and
records of the entities in a position from which returns could be
filed. Some of the returns were filed out of order, and amended
returns were filed as additional information was discovered.
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