Tommy Ho Ching Cheng - Page 16

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          Commissioner, 96 T.C. 858, 874 (1991), affd. 959 F.2d 16 (2d Cir.           
          1992); Recklitis v. Commissioner, 91 T.C. 874, 909 (1988).  Fraud           
          is rarely established by direct evidence, and various kinds of              
          circumstantial evidence may be relied upon to establish fraud.              
          Bradford v. Commissioner, supra at 307; Stone v. Commissioner, 56           
          T.C. 213, 224 (1971).                                                       
               Courts have developed several indicia, or “badges of fraud”,           
          from which fraud may be inferred.  See Bradford v. Commissioner,            
          supra at 307-308; Clayton v. Commissioner, supra at 647;                    
          Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).  Although            
          no single badge is necessarily sufficient to establish fraud, the           
          existence of several badges may be persuasive circumstantial                
          evidence of fraud.  Niedringhaus v. Commissioner, supra.                    
          Respondent argues the following badges of fraud are present:  (1)           
          Failing to file tax returns; (2) understating income; (3)                   
          maintaining inadequate books and records; (4) sophistication in             
          business affairs; (5) concealing assets; (6) dealing in large               
          amounts of cash; (7) engaging in illegal activities; and (8)                
          failing to make estimated tax payments.5                                    
               Petitioner’s plea of guilty to three counts under section              
          7203 conclusively establishes petitioner’s willful failure to               
          file tax returns in 1993, 1994, and 1996, which is a badge of               

               5  Respondent framed the badges of fraud in a different                
          manner.  However, several of the badges alleged by respondent               
          were repetitive, and are thus listed only once.                             




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