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Miller v. Commissioner, 94 T.C. 316, 334 (1990). Additionally,
the taxpayer’s background may be examined to establish fraud.
Spies v. United States, 317 U.S. 492, 497 (1943); Niedringhaus v.
Commissioner; supra at 211; Walters v. Commissioner, T.C. Memo.
1995-543.
A consistent pattern of understating income may be strong
evidence of fraud. Delvecchio v. Commissioner, supra (citing
Holland v. United States, 348 U.S. 121, 137 (1954)); Camien v.
Commissioner, 420 F.2d 283, 287 (8th Cir. 1970), affg. T.C. Memo.
1968-12; Williams v. Commissioner, T.C. Memo. 1992-153
(“petitioner has consistently and substantially understated his
income, a fact that even, ‘standing alone, is persuasive evidence
of fraudulent intent to evade taxes.’” (quoting Estate of Beck v.
Commissioner, 56 T.C. 297, 364 (1971))), affd. 999 F.2d 760 (4th
Cir. 1993). It has been held that discrepancies of 100 percent
or more between the correct net income and the reported net
income for 3 successive years provide strong evidence of
fraudulent intent. Hargis v. Godwin, 221 F.2d 486, 490 (8th Cir.
1955); Rogers v. Commissioner, 111 F.2d 987, 989 (6th Cir. 1940);
Adams v. Commissioner, T.C. Memo. 1979-305. Moreover, fraudulent
understatement of income may be established by overstatement of
Schedule C expenses. Drobny v. Commissioner, 86 T.C. 1326, 1349
(1986), affd. 113 F.3d 670 (7th Cir. 1997); Clark v.
Commissioner, T.C. Memo. 1991-313.
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