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II. Fraud Penalty Under Section 6663(a)
Section 6663(a) provides: “If any part of any underpayment
of tax required to be shown on a return is due to fraud, there
shall be added to the tax an amount equal to 75 percent of the
portion of the underpayment which is attributable to fraud.” The
Commissioner bears the burden of proving by clear and convincing
evidence that an underpayment of tax was attributable to fraud.
Sec. 7454(a); Rule 142(b). The Commissioner may satisfy this
burden by relying on deemed admissions. Marshall v.
Commissioner, 85 T.C. 267, 272-273 (1985); Doncaster v.
Commissioner, 77 T.C. 334, 336-337 (1981).
Petitioner was deemed to have admitted that he underpaid the
tax required to be shown on his 2002 return and that the
underpayment was attributable to fraud. These deemed admissions
are sufficient for respondent to carry his burden of proving by
clear and convincing evidence that petitioner’s underpayment of
tax was attributable to fraud. See Marshall v. Commissioner,
supra at 272-273; Doncaster v. Commissioner, supra at 336-337.
Additionally, petitioner kept no books or records and failed to
cooperate in the audit of his return, both of which are indicia
of fraud. See, e.g., Bradford v. Commissioner, 796 F.2d 303, 308
(9th Cir. 1986), affg. T.C. Memo. 1984-601; Smith v.
Commissioner, 91 T.C. 1049, 1059-1060 (1988), affd. 926 F.2d 1470
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