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that (1) an underpayment exists, and (2) some portion of the
underpayment is attributable to fraud. DiLeo v. Commissioner, 96
T.C. 858, 873 (1991), affd. 959 F.2d 16 (2d Cir. 1992).
If the Commissioner establishes that any portion of an
underpayment is attributable to fraud, the entire underpayment
shall be treated as attributable to fraud. Sec. 6663(b). When
taxpayers establish by a preponderance of the evidence that any
portion of the underpayment is not attributable to fraud, they
shall not be liable for a fraud penalty with respect to that
portion of the underpayment. Id.
Petitioners argue that respondent has “failed to prove that
Sam Kong had the intent to conceal, mislead, or otherwise prevent
the assessment and collection of the taxes at issue and attempted
to evade taxes.” Petitioners further argue that if we find that
they are liable for the fraud penalties, a penalty should not be
imposed on $24,594 of gross receipts, which petitioners’
accountant mistakenly omitted from the 1995 corporate income tax
return of Sam Kong Fashions.
A. Underpayment
To prove an underpayment, the Commissioner is not required
to establish the exact amount of the deficiency. DiLeo v.
Commissioner, supra at 873. The Commissioner, however, has not
satisfied his burden of proof by relying on the taxpayer’s
failure to prove that the Commissioner erred in the determination
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