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A taxpayer is liable for an addition to tax or penalty for
fraud equal to 75 percent of the part of the underpayment that is
due to fraud. Secs. 6653(b), 6663(a). If the Commissioner shows
that any part of an underpayment is due to fraud, the entire
underpayment is treated as due to fraud unless the taxpayer
proves that part of the underpayment is not due to fraud. Secs.
6653(b)(2), 6663(b).
Respondent bears the burden of proving the applicability of
the civil fraud additions to tax and penalty by clear and
convincing evidence. Sec. 7454(a); Rule 142(b). To sustain this
burden, respondent must establish by this level of proof both (1)
that there was an underpayment of tax for the taxable year in
issue and (2) that at least some portion of the underpayment 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).
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denying that their underpayments of income tax for 1987 were due
to fraud for purposes of sec. 6653(b). See Johnson v. Sawyer, 47
F.3d 716, 722 (5th Cir. 1995); Gray v. Commissioner, 708 F.2d 243
(6th Cir. 1983), affg. T.C. Memo. 1981-1; Brooks v. Commissioner,
82 T.C. 413, 431 (1984), affd. without published opinion 772 F.2d
910 (9th Cir. 1985); Arctic Ice Cream Co. v. Commissioner, 43
T.C. 68 (1964); Amos v. Commissioner, 43 T.C. 50 (1964), affd.
360 F.2d 358 (4th Cir. 1965).
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