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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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