Ronald B. and Annette C. Talmage - Page 78




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         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 unreported           







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