- 44 -
Commissioner, 763 F.2d 1139, 1143 (10th Cir. 1985), affg. T.C.
Memo. 1984-152 (quoting 10 Mertens, Law of Federal Income
Taxation, sec. 55.10, at 46 (1984)). 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; see Temple
v. Commissioner, supra (a taxpayer’s level of education and his
prior history of filing income tax returns are relevant to the
inquiry).
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;51 (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
authorities; (7) the filing of false documents; (8) making of
false and inconsistent statements to revenue agents; (9)
concealing income from a taxpayer’s tax preparer; and (10)
51“The consistent understatement of large amounts of income
for a number of years is evidence of willful intent to evade.”
Otsuki v. Commissioner, 53 T.C. 96, 108 (1969). In Holland v.
United States, 348 U.S. 121, 139 (1954), “the Supreme Court
declared that ‘evidence of a consistent pattern of underreporting
large amounts of income’ will support ‘an inference of
willfulness’”. Otsuki v. Commissioner, supra at 108.
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