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Sec. 7454(a); Rule 142(b); Niedringhaus v. Commissioner, supra at
210.
1. Underpayment
When an allegation of fraud is intertwined with
reconstructed unreported income, as in the present case, the
Commissioner may satisfy the burden of establishing an
underpayment by either proving a likely source of the unreported
income, or disproving the nontaxable source(s) that the taxpayer
alleges for the unreported income. Parks v. Commissioner, 94
T.C. 654, 658 (1990).
We have already found that respondent established by clear
and convincing evidence that petitioner received amounts totaling
$515,993 in 1988. On the instant record, we now find that
respondent has established by clear and convincing evidence a
likely source of petitioner’s unreported income for 1988; namely,
petitioner’s coal businesses. Accordingly, we hold that
respondent has established by clear and convincing evidence that
petitioner underpaid his Federal income taxes for 1988.
2. Fraudulent Intent
The existence of fraud is a question of fact. See Hagaman
v. Commissioner, 958 F.2d 684, 696 (6th Cir. 1992), affg. and
remanding T.C. Memo. 1987-549. To establish fraud, Commissioner
must show that taxpayer “engaged in conduct with the intent to
evade taxes” that “he knew or believed to be owing.” United
States v. Walton, 909 F.2d 915, 926 (6th Cir. 1990). Because
direct evidence of fraud is rarely available, it may be inferred
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