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income. Therefore, both SCC and Mr. Strong underpaid their taxes
for 1990-94.
2. Fraudulent Intent
Because direct evidence of fraud is rarely available, fraud
may be proved by circumstantial evidence and reasonable
inferences from the facts. Petzoldt v. Commissioner, 92 T.C.
661, 699 (1989). Courts have developed a nonexclusive list of
factors, or “badges of fraud”, that demonstrate fraudulent
intent. Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).
These badges of fraud include: (1) Understating income; (2)
maintaining inadequate records; (3) failure to file tax returns;
(4) implausible or inconsistent explanations of behavior; (5)
concealment of income or assets; (6) failing to cooperate with
tax authorities; (7) filing false documents; (8) failure to make
estimated tax payments; (9) dealing in cash; (10) engaging in
illegal activities; (11) attempting to conceal illegal activity;
(12) an intent to mislead which may be inferred from a pattern of
conduct; and (13) lack of credibility of the taxpayer’s
testimony. Id.; see also Spies v. United States, 317 U.S. 492,
499 (1943); Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).
Although no single factor is necessarily sufficient to establish
fraud, the combination of a number of factors constitutes
persuasive evidence. Niedringhaus v. Commissioner, supra at 211.
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