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The taxpayer's background and the context of the events in
question may be considered as circumstantial evidence of fraud.
Spies v. United States, supra at 497; Plunkett v. Commissioner,
supra at 303.
The instant case involves numerous badges of fraud.
Petitioner is an intelligent and well-educated businessman, who
prior to 1999 complied with applicable tax laws. Petitioner
failed to file tax returns or make tax payments in taxable years
1999 through 2002. Petitioner attempted to conceal assets and
income in a sham trust. Petitioner failed to cooperate with
reasonable requests for documents. We conclude that the record
shows by clear and convincing evidence that petitioner
understated his income and that there are sufficient badges of
fraud to show that petitioner fraudulently intended to understate
his income. We therefore hold that petitioner is liable for the
fraud penalty pursuant to section 6651(f) for taxable years 1999,
2000, and 2001.
Pursuant to section 7491(c), respondent bears the burden of
production with respect to the additions to tax under sections
6651(a)(1), 6651(a)(2), and 6654. Consequently, respondent must
produce sufficient evidence to demonstrate that the addition to
tax is appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446
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