Opinion ID: 776467
Heading Depth: 2
Heading Rank: 4

Heading: Fraud Penalty

Text: 30 The Estate also challenges the Tax Court's finding that the Estate engaged in fraudulent practices that subject it to a penalty. 31 Section 6663 imposes a 75-percent penalty for any underpayment of tax that is linked to fraud. In pertinent part, the statute reads as follows: 32 (a) Imposition of penalty 33 If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud. 34 (b) Determination of portion attributable to fraud 35 If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud. 36 [F]raud is intentional wrongdoing on the part of the taxpayer with the specific intent to avoid a tax known to be owing. Conforte v. Comm'r, 692 F.2d 587, 592 (9th Cir.1982). The Tax Court may infer that a taxpayer engaged in fraudulent conduct by determining the existence of certain badges of fraud, including the following: (1) understatement of income; (2) inadequate records; (3) failure to file tax returns; (4) implausible or inconsistent explanations of behavior; (5) concealing assets; and (6) failure to cooperate with tax authorities. Bradford v. Comm'r, 796 F.2d 303, 307-08 (9th Cir. 1986) (citations omitted). 37 We note that although the Tax Court found fraud based on four of the above-enumerated badges (understatement of income, implausible or inconsistent explanation of behavior, concealing assets, and failure to cooperate with tax authorities), this determination rested in part on now-vacated findings related to omitted assets and the Sterling stock. In light of this posture, it is appropriate for the Tax Court to consider on remand, after it makes the requisite findings and clarifications, whether it is necessary to revisit its conclusions regarding fraud. In directing this approach, we do not pass judgment on the Tax Court's multiple, careful, and well-documented findings in this arena, nor do we suggest that a remand will necessarily result in a different outcome with respect to fraud. 38 Finally, it bears noting that we do not necessarily countenance the various arguments that the Estate makes in support of its argument that the Tax Court's fraud findings are clearly erroneous. In particular, we reject the Estate's suggestion that blind reliance on an accountant's valuation is sufficient per se to avoid fraud. Indeed, were that the case, experts for hire would serve as an ironclad defense in tax fraud cases. Although it may be reasonable in some circumstances for a taxpayer to rely on an accountant's advice about the intricacies of tax law, see, e.g., United States v. Boyle, 469 U.S. 241, 251, 105 S.Ct. 687, 83 L.Ed.2d 622 (1985), that presumption only attaches to valuations when the taxpayer exercises due care in obtaining an appraisal of fair market value and presents some proof in support of the asserted valuation. Sammons v. Comm'r, 838 F.2d 330, 337 (9th Cir.1988) (internal quotation marks and citations omitted). Here, the Tax Court appropriately noted that Trompeter's daughters are well-educated, sophisticated, and knowledgeable about various of the Estate's holdings, and thus should not have blindly accepted expert conclusions at face value — especially when those conclusions may have been contradicted by other appraisals prepared by the Estate. See, e.g., Hildebrand v. Comm'r, 967 F.2d 350, 353 (9th Cir.1992) (holding, in the context of affirming negligence penalties under Internal Revenue Code § 6653(a), that having returns prepared by Coopers & Lybrand was not sufficient to demonstrate exercise of due care when the taxpayers had engaged in a transaction which clearly lacked economic substance, and which was designed to produce tax benefits out of proportion with total investment.).