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Fraud is defined as an intentional wrongdoing designed to
evade tax believed to be owing. Powell v. Granquist, 252 F.2d 56
(9th Cir. 1958); Miller v. Commissioner, 94 T.C. 316, 332 (1990).
Fraud is a question of fact that must be considered based on an
examination of the entire record and petitioner's entire course
of conduct. Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).
Fraud is never presumed and must be established by independent
evidence of fraudulent intent. Id. The Commissioner bears the
burden of demonstrating fraud by clear and convincing evidence.
Sec. 7454(a); Rule 142(b). To carry the burden of proof on the
issue of fraud, the Commissioner must show, for each year at
issue, that (1) an underpayment of tax exists and (2) some
portion of the underpayment is due to fraud. Petzoldt v.
Commissioner, supra at 699. Respondent’s burden of proving fraud
can be met by facts deemed admitted pursuant to Rule 37(c).
Doncaster v. Commissioner, 77 T.C. at 337 (1981); see Marshall v.
Commissioner, 85 T.C. 267, 272-273 (1985). Fraud may also be
proven by circumstantial evidence, and reasonable inferences may
be drawn from the facts because direct evidence is rarely
available. Delvecchio v. Commissioner, T.C. Memo. 2001-130,
affd. 37 Fed. Appx. 979 (11th Cir. 2002).
Circumstantial evidence that may give rise to a finding of
fraud includes: (1) Understatement of income; (2) inadequate
records; (3) failure to file tax returns; (4) providing
implausible or inconsistent explanations of behavior; (5)
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