William S. Fairey, Jr., and Susan R. Fairey - Page 25

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          about events during the years in issue; (d) failure to cooperate            
          with tax authorities; and (e) having false or inadequate books              
          and records.                                                                
                    a.   Creating a False Document                                    
               Submitting an altered document to the Commissioner’s agents            
          to obtain tax benefits is a badge of fraud.  Powell v. Granquist,           
          252 F.2d 56, 59 (9th Cir. 1958); Bagby v. Commissioner, 102 T.C.            
          596, 608-609 (1994); see Spies v. United States, 317 U.S. 492,              
          499 (1943); Stephenson v. Commissioner, 79 T.C. 995, 1007 (1982),           
          affd. 748 F.2d 331 (6th Cir. 1984).  Each party accuses the other           
          of altering the letter from Special Friends and testifying                  
          falsely about it.                                                           
               We decide whether a witness is credible on the basis of                
          objective facts, the reasonableness of the testimony, and the               
          demeanor and consistency of statements made by the witness.                 
          Quock Ting v. United States, 140 U.S. 417, 420-421 (1891); Wood             
          v. Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C.           
          593 (1964); Pinder v. United States, 330 F.2d 119, 124-125 (5th             
          Cir. 1964); Concord Consumers Hous. Coop. v. Commissioner, 89               
          T.C. 105, 124 n.21 (1987).                                                  
               Petitioner testified and contends that he received a letter            
          from Special Friends that acknowledged his purchase of an                   
          advertisement for $7,500.  We disagree.  First, petitioner’s                
          testimony was contradicted by the credible testimony of Colanino            






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