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2. Litigation Costs--Fraud, Negligence
In order to prevail on the fraud aspect of Sandra’s motion,
respondent must demonstrate that respondent had a reasonable
basis for believing respondent could prove Sandra’s fraud by
clear and convincing evidence. See Rutana v. Commissioner, 88
T.C. 1329, 1331, 1337-1338 (1987).
In Downing I, we held that respondent proved by clear and
convincing evidence that Michael understated his plumbing
business’s Schedule C, Profit or Loss From Business, gross
receipts by substantial amounts and that these understatements of
receipts resulted in understatements of income, which in turn
resulted in underpayments of Michael’s income tax. We then held
that respondent proved by clear and convincing evidence that some
or all of these underpayments were due to Michael’s fraud.
Because we held in Downing I, that Sandra did not have a
deficiency (for purposes of the instant case, “underpayments” and
“deficiency” are equivalent terms; compare sec. 6211(a) with sec.
6664(a)), Sandra could not have any civil fraud penalty
liability, and so we did not consider in Downing I whether Sandra
had committed civil tax fraud.
8(...continued)
Management Co. v. Commissioner, 108 T.C. 430, 446-448 (1997). In
the instant case, respondent took one position, and (at least by
the time of the trial) petitioners united in taking the opposite
position.
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