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1956-112; Hebrank v. Commissioner, 81 T.C. 640, 642 (1983).
Thus, respondent must establish that petitioner underpaid his
taxes for each year in issue and that some part of the
underpayment for each year is due to fraud. DiLeo v.
Commissioner, supra at 873.
1. Clear and Convincing Evidence of Underpayment
“To prove an underpayment, the Commissioner is not required
to establish the precise amount of the deficiency determined by
him.” Id.; see Otsuki v. Commissioner, 53 T.C. 96, 105 (1969).
“However, he cannot discharge his burden by simply relying on the
taxpayer’s failure to prove error in his determination of the
deficiency.” DiLeo v. Commissioner, supra at 873. The
Commissioner need only establish that the taxpayer received
unreported income and that the nondisclosure resulted in a tax
deficiency. United States v. Campbell, 351 F.2d 336, 338 (2d
Cir. 1965); Elwert v. United States, 231 F.2d 928, 931 (9th Cir.
1956); United States v. Bender, 218 F.2d 869, 871-72 (7th Cir.
1955); Langworthy v. Commissioner, T.C. Memo. 1998-218.
When the allegations of fraud are intertwined with
unreported and indirectly reconstructed income, the Commissioner
can satisfy his burden of proving the underpayment in one of two
ways: (1) By proving a likely source of the unreported income;
or (2) where the taxpayer alleges a nontaxable source, the
Commissioner may meet his burden by disproving the taxpayer’s
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