Opinion ID: 473746
Heading Depth: 1
Heading Rank: 3

Heading: Civil Fraud Penalty

Text: 18 The Commissioner also assessed penalties for civil fraud under 26 U.S.C. Sec. 6653(b), which provides that [i]f any part of any underpayment ... of tax ... is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment. 19 In the context of the 50 percent penalty of section 6653, fraud is intentional wrongdoing on the part of the taxpayer with the specific intent to avoid a tax known to be owing. Conforte, [v. Commissioner ], 692 F.2d at 592 [ (9th Cir.1982) ] (citing Powell v. Granquist, 252 F.2d 56, 60 (9th Cir.1958)). The Commissioner must prove fraud by clear and convincing evidence, I.R.C. Sec. 7454(a); Stone v. Commissioner, 56 T.C. 213, 220 (1971), but intent can be inferred from strong circumstantial evidence, Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 368, 87 L.Ed. 418 (1943); Powell, 252 F.2d at 61; Stone, 56 T.C. at 223-24. 20 Akland v. Commissioner, 767 F.2d 618, 621 (9th Cir.1985). The Tax Court's finding of fraud is factual and should be reversed only if this panel is left with the definite and firm conviction ... that there is no clear and convincing evidence of fraud. Id. (citations omitted). See also Considine v. United States, 683 F.2d 1285, 1286 (9th Cir.1982). 21 Because fraudulent intent is rarely established by direct evidence, this court has inferred intent from various kinds of circumstantial evidence. These badges of fraud include: (1) understatement of income, see, e.g., Grudin v. Commissioner, 536 F.2d 295, 296 (9th Cir.1976); Ruark v. Commissioner, 449 F.2d 311, 313 (9th Cir.1971); Bahoric v. Commissioner, 363 F.2d 151, 153-54 (9th Cir.1966); Estate of Rau v. Commissioner, 301 F.2d 51, 54-55 (9th Cir.), cert. denied, 371 U.S. 823, 83 S.Ct. 41, 9 L.Ed.2d 62 (1962); Factor v. Commissioner, 281 F.2d 100, 129 (9th Cir.1960), cert. denied, 364 U.S. 933, 81 S.Ct. 380, 5 L.Ed.2d 365 (1961); Cohen v. Commissioner, 266 F.2d 5, 12 (9th Cir.1959); Powell v. Granquist, 252 F.2d 56, 61 (9th Cir.1958); (2) inadequate records, see, e.g., Bahoric, 363 F.2d at 154; Factor, 281 F.2d at 129; Cohen, 266 F.2d at 12; Powell, 252 F.2d at 61; (3) failure to file tax returns, see, e.g., Factor, 281 F.2d at 129; Powell, 252 F.2d at 61; (4) implausible or inconsistent explanations of behavior, see, e.g., Bahoric, 363 F.2d at 153; Factor, 281 F.2d at 129; Baumgardner v. Commissioner, 251 F.2d 311, 321 (9th Cir.1957); (5) concealing assets, see, e.g., Ruark, 449 F.2d at 312-13; Powell, 252 F.2d at 61; and (6) failure to cooperate with tax authorities, see, e.g., Ruark, 449 F.2d at 313; Powell, 252 F.2d at 61. 22 The following facts support a finding of fraud: (1) Bradford engaged in illegal activities; (2) he failed to file returns for four consecutive years; (3) he failed to report substantial business income, his salary from Stanford, and the gain on the sale of his residence, all of which he knew constituted taxable income; (4) he dealt in cash to avoid scrutiny of his finances; (5) he filed false W-4's; (6) he made efforts to conceal his laetrile distribution activities; (7) he failed to make estimated tax payments; (8) he failed to cooperate with the revenue agent during the audit examination; and (9) he failed to maintain adequate records. 23 The Tax Court's finding that fraud had been established by clear and convincing evidence was adequately supported by the record. 24 The judgment is AFFIRMED.