-300-
mere suspicion of fraud is insufficient because fraud is not to
be inferred or presumed. Carter v. Campbell, 264 F.2d 930, 935
(5th Cir. 1959).
In Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.
1986), affg. T.C. Memo. 1984-601, the U.S. Court of Appeals for
the Ninth Circuit set forth a nonexclusive list of circumstantial
factors that may give rise to a finding of fraudulent intent.
Such “badges of fraud” include: (1) Understatement of income;
(2) maintenance of inadequate records; (3) failure to file income
tax returns; (4) implausible or inconsistent explanations of
behavior; (5) concealment of assets; and (6) failure to cooperate
with tax authorities.
In addition, substantial understatements of income for
successive years are strong evidence of fraudulent intent.
Rogers v. Commissioner, 111 F.2d 987, 989 (6th Cir. 1940), affg.
38 B.T.A. 16 (1938); Conforte v. Commissioner, 74 T.C. 1160, 1201
(1980), affd. in part and revd. on another issue 692 F.2d 587
(9th Cir. 1982); Otsuki v. Commissioner, 53 T.C. 96, 107-108
(1969); see also Baumgardner v. Commissioner, 251 F.2d 311, 316
(9th Cir. 1957), affg. T.C. Memo. 1956-112.
A. Failure To Report Substantial Amounts of Income
Kanter and Ballard both filed tax returns during the years
at issue and were fully aware of their obligations to report all
of their income and pay Federal income taxes. However, Kanter
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