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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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