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of $10,038 in 1990. He is therefore liable for self-employment
tax on $10,038 in 1990.
F. Section 6663(a) Fraud Penalty
If respondent shows that any portion of an underpayment is
due to fraud, the entire underpayment will be treated as
attributable to fraud for purposes of the penalty under section
6663(a), except any portion of the underpayment that petitioner
establishes by a preponderance of the evidence is not
attributable to fraud. See sec. 6663(b); Knauss v. Commissioner,
T.C. Memo. 2005-6. We held above that respondent proved by clear
and convincing evidence that petitioner used at least some of
Taxman’s cash for his own personal expenses with the intent to
evade taxation on the income. We also held that respondent has
proven that petitioner used all of Taxman’s $3,000 in cash
receipts for personal expenses. Petitioner’s lack of record
keeping, blatant efforts to hide the existence of the cash, and
use of the cash for personal expenses show that he intentionally
concealed all of Taxman’s cash receipts and took possession of
the money with the intent to evade taxes. Therefore, the
section 6663(a) fraud penalty for each year applies to the
portion of the deficiency in petitioner’s tax attributable to the
$3,000 understatement of income.
Respondent argues that the fraud penalty applies to the
entire amounts of the deficiencies. An analysis of whether
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