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We conclude that respondent has proven by clear and
convincing evidence that Mrs. Paterson fraudulently understated
her tax liabilities for the years at issue and Mrs. Paterson has
failed to prove that any portion of the underpayments is not due
to fraud. We find that the fraud penalty under section 6663
applies to Mrs. Paterson’s underpayments of tax for the years at
issue.
III. Limitations Period
Petitioners argue that the 3-year limitations period under
section 6501(a) has expired and that respondent is therefore
barred from assessing petitioners’ taxes for the years at issue.
Respondent issued deficiency notices to petitioners on April 1,
2004 (with respect to Mrs. Paterson’s liability for both years
and Mr. Paterson’s liability for 1997) and November 4, 2004 (with
respect to Mr. Paterson’s liability for 1998). The limitations
period commences on the date the return is filed. Sec. 6501(a).
Returns filed before the due date are deemed filed on the due
date.8 Sec. 6501(b).
In the case of false and fraudulent returns with the intent
to evade tax, the tax may be assessed at any time. Sec.
6501(c)(1). Because we have found that petitioners are each
liable for the fraud penalty under section 6663, we hold that the
limitations period for assessing petitioners’ taxes is extended
8Although the dates petitioners filed the returns are not
evident from the record, the earliest the returns would be
treated as filed is Apr. 15, 1998 and 1999, respectively. Sec.
6501(b).
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