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evidence that a portion of the underpayment is not due to fraud.
Sec. 6663(b); Smoll v. Commissioner, T.C. Memo. 2006-157.
Fraud is a factual question to be decided on the entire
record and is never presumed. Rowlee v. Commissioner, 80 T.C.
1111, 1123 (1983); Beaver v. Commissioner, 55 T.C. 85, 92 (1970).
The Commissioner must show that the taxpayer acted with specific
intent to evade taxes that the taxpayer knew or believed he or
she owed by conduct intended to conceal, mislead, or otherwise
prevent the collection of the tax. Sec. 7454; Recklitis v.
Commissioner, 91 T.C. 874, 909 (1988); Stephenson v.
Commissioner, 79 T.C. 995, 1005 (1982), affd. 748 F.2d 331 (6th
Cir. 1984).
Direct evidence of fraud is seldom available, and its
existence may therefore be determined from the taxpayer’s conduct
and the surrounding circumstances. Stone v. Commissioner, 56
T.C. 213, 223-224 (1971). Courts have developed several indicia
or badges of fraud. These badges of fraud include understating
income, maintaining inadequate records, concealing income or
assets, failing to cooperate with tax authorities, engaging in
illegal activities, filing false documents, and dealing in cash.
Spies v. United States, 317 U.S. 492, 499 (1943); Bradford v.
Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601. Although no single factor is necessarily
sufficient to establish fraud, a combination of several of these
factors may be persuasive evidence of fraud. Solomon v.
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