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failure to maintain accurate records or concealment of records
may be a badge of fraud. Merritt v. Commissioner, 301 F.2d 484,
487 (5th Cir. 1962), affg. T.C. Memo. 1959-172; Reaves v.
Commissioner, 295 F.2d 336, 338 (5th Cir. 1961), affg. 31 T.C.
690 (1958); Grosshandler v. Commissioner, 75 T.C. 1, 20 (1980).
d. Creating False Legal Documents and Concealing
Assets From Potential Creditors
Backdating or creating false documents may be a badge of
fraud. See Tyrell v. Commissioner, T.C. Memo. 1995-568; Smith v.
Commissioner, T.C. Memo. 1995-402, affd. 116 F.3d 492 (11th Cir.
1997); Savage v. Commissioner, T.C. Memo. 1992-129. Concealing
assets from potential creditors may be evidence of a taxpayer’s
willingness to conceal income from the Internal Revenue Service.
See Freidus v. Commissioner, T.C. Memo. 1999-195; McDonald v.
Commissioner, T.C. Memo. 1996-87, affd. 114 F.3d 1194 (9th Cir.
1997); Ashdown v. Commissioner, T.C. Memo. 1989-40; Gay v.
Commissioner, T.C. Memo. 1968-226; see also United States v.
Scott, 37 F.3d 1564 (10th Cir. 1994).
In 1995, petitioners created bogus promissory notes and
deeds of trust in favor of Cogan, Edgar, Lewellen, and O’Leary to
make it falsely appear that petitioners’ properties were
encumbered and to protect them from potential creditors.
e. Disguising Personal Expenses as Business Expenses
The practice of claiming personal expenses as business
expenses may be evidence of fraud. Lowy v. Commissioner, 262
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