Opinion ID: 287891
Heading Depth: 1
Heading Rank: 3

Heading: 1952-1955 fraud

Text: 19 There remains the question of whether the Commissioner met his burden of proving that appellants fraudulently understated their income for the years 1952 through 1955. A finding of fraud is required for two reasons. First, fraud on the part of the appellants is necessary to sustain the penalties assessed by the Tax Court. Secondly, absent a showing of fraud, the statute of limitations would bar an assessment of the deficiencies for the years in question. 8 20 The legal principles relevant to a finding of tax fraud are well settled and succinctly set forth in the following statement by Judge Van Oosterhout, now Chief Judge: 21 'It is clear that the burden is upon the Government to establish fraud    by clear and convincing evidence. 22 The question of whether a substantial understatement of income is due to fraud ordinarily presents an issue of fact. Fraud is never presumed. Fraud may be established by direct or circumstantial evidence. Taxpayer's failure to overcome the presumption of correctness of the Commissioner's determination of a tax deficiency will not, standing alone, support a finding of fraud. However, a consistent pattern of underreporting large amounts of income over a period of years is substantial evidence bearing upon an intent to defraud, particularly in situations where no satisfactory explanation for such understatement is forthcoming. (Citations)The clearly erroneous standard applies to findings made by the Tax Court. Findings supported by substantial evidence on the record as a whole which are not against the clear weight of the evidence or induced by an erroneous view of the law will not be disturbed upon appeal.' Lessmann v. Commissioner, supra at 993. 23 As previously discussed, appellants, during the years in question, consistently understated their income on the returns filed with the Commissioner. While this standing alone might not, in the instant case, support a finding of fraud, it certainly constitutes strong evidence of same, particularly where, as here, appellants fail to satisfactorily explain the understatements. However, in this case it does not stand alone, for the Tax Court found specific items of income in each of the years in question which were not reported by appellants. For example, the court found that Herbert received in the years 1952, 1953, 1954 and 1955 $2,500, $150, $3,200 and $6,000 respectively from an Otto Wilke for aiding Wilke in the filing of his income tax returns. None of these sums was reported by appellants in their joint returns for the years in question. Moreover, the court found that Herbert failed to even mention in his 1953 return $50,000 which he received in a transaction occurring in that year, nor did Melita report income received in 1953 and 1954 from a corporation in which she was a substantial stockholder. All of these factual findings were supported by the evidence and were certainly not clearly erroneous. 24 In view of the above evidence, as well as our examination of the record, we believe that the government demonstrated to the Tax Court by clear and convincing evidence that part of the appellants' deficiency in tax for each of the years in question was due to fraud with intent to avoid the payment of taxes. Lessmann v. Commissioner, supra. 25 Affirmed.