-19-
Commissioner, 732 F.2d 1459, 1461 (6th Cir. 1984), affg. per
curiam T.C. Memo. 1982-603.
A. Mr. Paterson’s Liability for the Fraud Penalty
We now consider whether Mr. Paterson is liable for the fraud
penalty. We agree with respondent that several badges of fraud
are present with respect to Mr. Paterson’s underpayments of tax.
Mr. Paterson earned his income through an illegal wagering
enterprise. Mr. Paterson routinely destroyed his wagering
records after each football game to avoid being held accountable
for his illegal activities. He was arrested for his activities,
was convicted of tax evasion, and pleaded guilty to filing false
and fraudulent Forms 730. Mr. Paterson dealt in cash
exclusively. He did not keep records of the cash he received
from his customers and did not maintain a bank account that would
allow tracking of his income. Mr. Paterson also concealed
assets. He shielded his property by not taking title to assets,
such as the home in which he resided with Mrs. Paterson and the
Cadillac he drove. In addition, the primary asset of his
wagering enterprise was the cellular phones, which were
registered in his wife’s name. Mr. Paterson provided incomplete
and false information to his return preparer, simply telling his
return preparer how much income to report instead of providing
him documentation. Mr. Paterson also failed to report his golf
or card game winnings on his returns. Finally, Mr. Paterson
failed to cooperate with respondent during the audit.
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