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substantiate various expenses; and, in 2000, was liable for the
section 6662 accuracy-related penalty.3 Similarly, we sustain
respondent’s determination that Ms. Ngo understated her 2001
income.
At trial and by facts deemed stipulated, pursuant to Rule
91(f), respondent established by clear and convincing evidence
that 168 Garment and Ms. Ngo understated their respective 2001
taxes with the intent to commit fraud. See secs. 6663(a),
7454(a); Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).
Petitioners failed to maintain adequate records, cooperate with
respondent, and report a substantial amount of income on their
respective tax returns. See Bradford v. Commissioner, 796 F.2d
303, 307 (9th Cir. 1986) (stating that the failure to report
income, maintain adequate records, and cooperate with the
Commissioner are “badges of fraud” from which fraudulent intent
may be inferred), affg. T.C. Memo. 1984-601. In 2001, Ms. Ngo
repeatedly and consistently cashed 168 Garment’s checks but
failed to report the proceeds as income to either 168 Garment or
herself. This scheme was designed to conceal income, mislead
3 The penalty applies to the portion of 168 Garment’s
underpayment that is attributable to a substantial understatement
of income tax. Sec. 6662(b)(2). 168 Garment, on its 2000
return, reported a tax due of $1,961, yet 168 Garment owed
$66,900 (i.e. a difference of $64,939). Respondent has met his
burden of production pursuant to sec. 7491(c) and established
that 168 Garment understated its income tax liability. Sec.
6662(d)(1)(A)(i) and (ii).
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