- 13 - underreported income in both years; namely, $64,327 in 1995 and $40,562 in 1996. Accordingly, respondent has met his burden of showing by clear and convincing evidence that petitioner had underpayments of tax in 1995 and 1996. On the question of whether these underpayments are attributable to fraud, respondent has demonstrated several badges of fraud, as follows. Petitioner failed to report income in both years, indicating a pattern of underreporting. The unreported amounts were substantial in relation to petitioner’s reported gross receipts; namely, $64,327 of unreported income versus reported gross receipts of $12,652 in 1995, and $40,562 of unreported income versus reported gross receipts of $37,311 in 1996. The magnitude of the unreported amounts makes it virtually impossible that they could have been due to mere mistake or inadvertence. Petitioner’s records were clearly inadequate. While he was able to substantiate certain expenses, petitioner did not maintain or produce regular books or records from which the income from his Schedule C businesses could be ascertained. Petitioner gave numerous implausible explanations for his failure to report income. He offered three inconsistent explanations for his failure to report the $37,800 in income that he received from Johnson Controls, Inc., in 1995. Moreover, his claim that he did not receive the Form 1099-MISC from JohnsonPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011