Timothy R. and Cindy I. Fuller - Page 7

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          From this third-party information, the IRS began to reconstruct             
          petitioners’ gross income and expenses.                                     
               On May 27, 2005, the IRS mailed to petitioners the statutory           
          notice of deficiency.  After the notice of deficiency was sent,             
          petitioners’ counsel notified the IRS that the previously                   
          requested documents were available for review at his office.                
          Petitioners’ counsel also provided copies of the documents to the           
          IRS.  Much of the information regarding particular payments made            
          by or to petitioners, however, was gathered from third parties,             
          such as from petitioners’ bank, and was not evident from the                
          books and records provided by petitioners.  Petitioners                     
          themselves never provided any explanation of the documents or how           
          they had calculated their gross income and expenses for the years           
          in issue.                                                                   
                                       OPINION                                        
               The penalty in the case of fraud is a civil sanction                   
          provided primarily as a safeguard for the protection of the                 
          revenue and to reimburse the Government for the heavy expense of            
          investigation and the loss resulting from the taxpayer’s fraud.             
          Helvering v. Mitchell, 303 U.S. 391, 401 (1938); Sadler v.                  
          Commissioner, 113 T.C. 99, 102 (1999).  Respondent has the burden           
          of proving, by clear and convincing evidence, an underpayment for           
          those years in issue and that some part of the underpayment for             
          each of those years was due to fraud.  Sec. 7454(a); Rule 142(b).           






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