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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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