Albert M. Graham and Martha A. Graham - Page 39

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          D.   Whether Petitioner Is Liable for the Penalty for Fraud Under           
               Section 6663(a)                                                        
               1.   Background                                                        
               Respondent contends that petitioner is liable for the                  
          penalty for fraud under section 6663(a) for 1995, 1998, and 1999.           
          Respondent has the burden of proving fraud by clear and                     
          convincing evidence.  Sec. 7454(a); Rule 142(b).  Respondent must           
          establish:  (a) Petitioner underpaid tax for each year in issue,            
          and (b) some part of the underpayment is due to fraud.  Sec.                
          6653(b); Parks v. Commissioner, 94 T.C. 654, 660-661 (1990);                
          Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).  Petitioners             
          concede that they underpaid tax for 1995, 1998, and 1999.  If               
          respondent shows that any part of an underpayment is due to                 
          fraud, the entire underpayment is treated as due to fraud unless            
          the taxpayer shows by a preponderance of the evidence that part             
          of the underpayment is not due to fraud.  Sec. 6663(b).                     
               Fraud is the intentional evasion of a tax believed to be               
          owing.  Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968),            
          affg. T.C. Memo. 1966-81.  Fraud is never presumed; it must be              
          established by affirmative evidence.  Beaver v. Commissioner, 55            
          T.C. 85, 92 (1970).  The Commissioner may prove fraud by                    
          circumstantial evidence because direct evidence of the taxpayer's           
          intent is rarely available.  See Stephenson v. Commissioner, 79             
          T.C. 995, 1005-1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984).             







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