- 78 - opinion 578 F.2d 1383 (8th Cir. 1978). Because fraud can rarely be established by direct proof of the taxpayer’s intention, fraud may be established by circumstantial evidence and reasonable inferences drawn from the record. DiLeo v. Commissioner, supra at 874-875; Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). 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) inadequate records; (3) failure to file tax returns; (4) implausible or inconsistent explanations of behavior; (5) concealment of assets; and (6) failure to cooperate with tax authorities. Although no single badge is necessarily sufficient to establish fraud, the existence of several badges of fraud constitutes persuasive circumstantial evidence of fraud. Petzoldt v. Commissioner, 92 T.C. at 700. 2. Understatement of Income Respondent’s burden of proving an underpayment of tax attributable to unreported income may be satisfied in either of two ways: (1) By proving a likely source of the unreported income, or (2) by disproving any alleged nontaxable source. Dileo v. Commissioner, supra at 873-874. Respondent has proved, by clear and convincing evidence, that petitioner received unreportedPage: Previous 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 NextLast modified: March 27, 2008