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fraud may be proved by circumstantial evidence and reasonable
inferences from the facts. Petzoldt v. Commissioner, supra;
Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). The courts
have recognized numerous indicia or “badges” of fraud, including
the following: (1) A pattern of underreporting income; (2)
maintaining inadequate records; (3) giving implausible or
inconsistent explanations of behavior; (4) making false entries;
(5) dealing in cash; (6) engaging in illegal activities; and (7)
the lack of credibility of taxpayer’s testimony. Spies v. United
States, 317 U.S. 492, 499 (1943); Conti v. Commissioner, 39 F.3d
658, 662 (6th Cir. 1994), affg. and remanding on other grounds 99
T.C. 370 (1992) and T.C. Memo. 1992-616; Douge v. Commissioner,
899 F.2d 164, 168 (2d Cir. 1990); Laurins v. Commissioner, 889
F.2d 910 (9th Cir. 1989), affg. Norman v. Commissioner, T.C.
Memo. 1987-265; Bradford v. Commissioner, 796 F.2d 303, 307-308
(9th Cir. 1986), affg. T.C. Memo. 1984-601; Korecky v.
Commissioner, 781 F.2d 1566 (11th Cir. 1986), affg. T.C. Memo.
1985-63; Bingham v. Commissioner, T.C. Memo. 1998-102, affd.
without published opinion 188 F.3d 512 (9th Cir. 1999). Although
no single factor is necessarily sufficient to establish fraud,
the existence of several indicia constitutes persuasive
circumstantial evidence of fraud. Petzoldt v. Commissioner,
supra at 700. Further, the taxpayer’s background, including his
sophistication, experience, and education may be considered
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