Dwight D. Vanover, Petitioner

T.C. Memo. 2012-79 UNITED STATES TAX COURT DWIGHT D. VANOVER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 27591-07.

Filed March 21, 2012.

Williám B. Lbwrancë and D. Alden Newland, fét petitioner.

Aaron D. Gregory and Matthew S. ReddingtoíL for respondent.

MEMORANDUM FINDÍNGS OÊ FACT AND OPÍNION

MARVEL, Judge:

In a notice of deficiency issued to petitioner on September 14, 200'7, respondent determined,civilifraud penalties under section

SERVED MAR 2 1 2012

.

66631 of $58,952 and $188,138 for 2000 and 2001, respectively. Tlde sole issue for decision is whether petitioner is liable for the civil fraud penalti s.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts is incorporated herein by this reference. Petitioner resided in Virginia when he filed his petition.

I.

Background Petitioner is a businessman who owned and operated a flooring business during the years at issue. Petitioner left high school at age 15 and enlisted in the U.S. Army. After his military service, petitioner was employed in various occupations until 1984, when he began installing hardwood floors. n the ensuing years, petitioner opened two flooring businesses; both eventually filed for bankruptcy. At some point, petitioner also owned and operated a pi za and deli restaurant and a security business.

In 1996 petitioner, with the assistance of Robert Colling, incorporated a flooring business, Vanover Hardwood Floor-Works, Inc. (Vanover). Although the IUnless otherwise indicated, all section refe e es are o the Internal Revenue Code, as amended and in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

business was incorporated, petitioner operated Vanover as if it were a sole proprietorship out of an office and warehouse in Woodbridge, Virginia.

During the years at issue, petitioner used Vanover's business bank account to pay various personal expenses, including his home mortgage and utilities, and to purchase a classic automobile collection he calléd "The Vanover Collection" and, in 2001, a $159,000 Silverton yacht. In 2000 petitioner purchased two vehicles from Ramey Ford, Inc. (Ramey Ford): a 1940s Willys Coupe for $60,000 in cash and a 1967 Chevrolet Corvette for $32,500 in cash.

In 2001 petitioner purchased three vehicles from Ramey Ford. He also purchased eight additional vehicles from various sellers, for a total purchase price of $277,000. Petitioner titled most of the automobiles in his name, but he also titled some ii Vanover's name and some in his business partner's name.

II.

Petitioner's Tax Reporting During the years at issue petitioner retained physical copies of Vanover's business records. Petitioner kept records for the current year in a file cabinet in the office of Vanover's secretary. At the end of the year, petitioner ould empty the file cabinet, put the items in each file into a brown envelope, and store the I envelopes in a green plastic tub. Petitioner also kept a dome book² g , y, Petitioner's assistant, Melissa Scott, recorded the relevant information in the dome book.

.

Although Vanover was incorporated, petitioner did not treat Vanover as an incorporated entity and instead reported Vanover's income and expenses for each year on a Schedule C, Profit or Loss From Business, attached to his ersonal income tax return? Petitioner hired Mr. Colling to prepare his personal income tax returns for 2000 and 2001. Mr. Colling has worked as a tax ret preparer since 1994, and he operates his own business, R Tax Service. Mr. C611ing advised petitioner to synthesize all of Vanover's records and prepare a computer disk with all of the information. In lieu of giving Mr. Colling a computer disk, petitioner provided Mr. Colling with a summary statement of Vanover's incom: and expenses. Mr. Colling did not know who had prepared the summary statement of income and expenses, he did not try to verify the information on the :;tatement, and 2A dome book is a type of accounting book that includes sections for income as well as expenses, such as payroll.

3Both parties treated Vanover as a sole proprietorship that reported its income and expenses on a Schedule C, attached to petitioner's persoÅal return. In the light of the parties' apparent agreement, we shall also treat VanoÖer as if it were a sole proprietorship operated by petitioner.

he did not examine any of petitioner's or Vanover's records when reparing petitioner's returns.

Mr. Colling entered the data from the summary statement of income and expenses into a tax program to generate petitioner's tax returns. At the time, Mr.

Colling was unaware that petitioner used Vanover's business bank account to pay his personal expenses. Mr. Colling prepared only petitioner's pers nal tax returns.

Petitioner filed Forms 1040, U.S. Individual Income Tax Retùrn, for 2000 and 2001, on which he reported his income and expenses and Vanover's income and expenses.⁴ For 2000 petitioner reported taxable income of $5,583. On the attached Schedule C, petitioner reported gross receipts of $60,000 and expenses of $40,219 for Vanover.⁵ For 2001 petitioner reported taxable income of $5,247. On the attached Schedule C, petitioner reported gross receipts of $78,000 and 4Vanover did not file Forms 1120, U.S. Corporation Income Tax Return, for the years at issue. attached to petitioner's Forms 1040 for 2000 and 2001.

Its income and expenses were reported on the Schedules C 5Petitioner reported the following expenses for 2000: advertising $1,200, car and truck expenses $15,844, commissions and fees $480, insurance $3,100, legal and professional services $1,450, office expenses $1,595, rep irs and maintenance $3,150, supplies $4,200, taxes and licenses $250, and ineals and entertainment $1,800.

expenses of $62,465 for Vanover.⁶ Although petifioner used funds n Vanover's business bank account to pay personal expenses and to purchase per onal assets during both years, petitioner did not report these amounts as income on either of his Forms 1040.

III.

Petitioner's Criminal Investigation In April 2002 Special Agent Randall Brooke of the Internal R*enue Service (IRS) began a criminal investigation ofpetitioner. Petitione cooperated with Special Agent Brooke and provided the inforniation requested. The investigation ultimately led to prosecution ofpetitioner. On April 5, 2006, petitioner pleaded guilty to willfully making and subscribing a Form 1040 for taxable year 2001 in violation of section 7206(1).

In connection with petitioner's guilty plea, a "Statement of Facts" was filed with the U.S. District Court for the Eastern District of Virginia.⁷ In the statement of facts, petitioner admitted that in 1999, 2000, and 2001 he received money from Vanover, he spent the money on personal expenses, and he omitted that money 6ËetitiOner reported the following expenses for 2001: advertisiig $900, car and truck expenses $6,090, mortgage interest $18,000, office expenses $1,275, supphes $20,000, and utilities $8,000.

7As part of his plea agreement, petitioner admitted all of the facts in the statement of facts.

from his personal income,tax returns for those years.. He admitted hat he -.7 - underreported Vanover's gross income for 1999, 2000, and 2001 i he cumulative amount of $936,757. The unreported income "derived primarily fr m his uáë of the business accounts to purchase or make payments on collector automobiles ánd motorcycles as well as payments on several boats arid other personál expenses."

IV.

Petitioner's Amended Returns In January 2003 petitioner.gontacted Jacquelinë Way of the accounting firm Brown & Associates. Petitioner initially asked Ms. Way to assist h m with bookkeeping and eventually asked.Ms. Way to prepare amended ta returris.

As a result of the criminalfinvestigation and on the advice of [s. Way'ànd petitioner's attorney, on August 4,'2003, petitioner filed-ámended p fsonal income tax returns for 2000 and 2001. Ms. Way prepared petitioner's amer ded returñs using Vanover's business records stored in the green plastic tubs. On his 2000 Form 1040X, Amended U.S. Individual Income -Tax Return, petitior er reported taxable income of $229,538. Petitioner attached a Schedule C-EZ Ñet þrofit From Business, for Vanover, on which he reported gross ieceipts of $109,778 and total expenses of zero. Petitioner also attached a Schêdule B, Intere t and Ordinary Dividends, on,which he reported $139,513.as=ordinary div dénds fróm Vanover. On his 2001 Form 1040X, petitioner reported taxable inc me of $681,640. On an attached Schedule C-EZ for Vanover petitioner reported gross receipts of $78,000 and total expenses of zero. He also attached a Schedule B, on which he reported $603,232 as ordinary div'idends from Vanover. The IRS accepted the amended returns as filed. By notice of deficiency dated September 14, 2007, respondent determined that petitioner ¿vas liable for the civil fraud penalty under section 6663 for 2000 and 2001 and calculated the amounts of the penalties on the basis of petitioner's amended returns for those years.

OPINION

If any part of an underpayment on a return is due to fraud, sect on 6663(a) imposes on the taxpayer filing the return a penalty equal to 75% of the part of the underpayment attributable to fraud. To prove that a taxpayer is liabl for the section 6663(a) penalty, thë Commissioner must prove by clear and è nvincing evidence that (1) an underpayment of tax exists, and (2) some part of e underpayment is due to-fraud. Sec.-7454(a); Rule I142(b); DiLeo (cid:0)570.Commissioner,

6663(b).

I.

. Underpayment of Tax -.9 - The parties stipulated that petitioner undètstated his 2000 an 2001-Federal income tax liabilities by $79,443 and $250,851, respectively. Acco dingly, respondent has proven by clear and convincing evidence that petitioner underphid his Federal income taxes for the yeafs at issue. .

II.

Fraudulent Intent .

.

A.

Introduction If fraud is determined for multiple taxable yeárskthe Commis ioner's burden "applies separately for each of the years." Temple v. Commissioner, T.C.

Memo. 2000-337, äff'd, 62 Fed. Appx. 605 (6th Cir. 2003)., The Cqmmissioner satisfies this burden by showing that "the taxpayèr intended to evad taxes known to be owing by conduct intended to conceal,.mislead or otherwise pfevent the collection of taxes." DiLeo v. Commissioner, 96 T.C. at 8742 Frau "does not include negligence, carelessness, misunderstánding or unintentiorial understatement of income." United States (cid:16)254Pechenik,r236 F.2d 84 , 846 (3d Cir 1956).

The existence of fraud is a question of fact to be resolved upo consideration.ofthe entire récord. See DiLeò v. Commissioner, 96 T.C. at 874.

Fraud is never presumed and must be established by independent evidence of fraudulent intent. See Baumgardner v. Commissioner, 251 F.2d 311, 322 (9th Cir.

1957), afEg T.C. Memo. 1956-112. Fraud may be shown by circumstantial evidence because direct evidence of the taxpayer's fraudulent intent is seldom available. See Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), ff'd without published opinion, 578 F.2d 1383 (8th Cir. 1978). The taxpayer's entire course of conduct may establish the requisite fraudulent intent. See Stone v. Commissioner,

Memo. 1966-81. However, fraud is not proven when a court is left ith only a suspicion of fraud, and even a strong suspicion is not sufficient to es blish a taxpayer's liability for the fraud penalty. See Olinger v. Commissioner, 234 F.2d 823 (5th Cir. 1956), aff'g in part, rev'a in part on another ground T.C. Memo.

1955-9; Davis v. Commissioner, ;184 F.2d 86, 87 (10th Cir. 1950); G een v.

Commissioner, 66 T.C. 538, 550 (1976).

B.

Badges of Fraud Because it is difficult to prove fraudulent intent by direct evidcnce, the Commissioner may establish fraud by circumstantial evidence, which includes various "badges of fraud" (hereinafter, factors) on which the courts often rely. See Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff's T.C. Memo.

1984-601; DiLeo v. Commissioner, 96 T.C. at 875. These factors focus on whether the taxpayer engaged in certain conduct that is indicative of fraudulent intent such as: (1) understating income; (2) failing to maintain ade uate records; (3) offering implausible or inconsistent explanations; (4) concealing income or assets; (5) failing to cooperate with tax authorities; (6) engaging in llegal activities; (7) providing incomplete or misleading information to th taxpayer's return preparer; (8) offering false or incredible testimony; (9) filing false documents, including filing false income tax returns; (10) failing to file tax returns; and (11) engaging in extensive dealings in cash.⁸ See Brad 'ord v.

Commissioner, 796 F.2d at 307-308; Parks v. Commissioner, 94 T.G. 654, 664- 665 (1990); Recklitis v. Commissioner, 91 T.C. 874, 910 (1988); Lipsitz v.

Commissioner, 21 T.C. 917 (1954), aff'd, 220 F.2d 871 (4th Cir. 1955); see also Morse v. Commissioner, T.C. Memo. 2003-332, aff'd, 419 F.3d 829 (8th Cir.

2005). The existence of any one factor is not dispositive, but the existence of several factors is persuasive circumstantial evidence of fraud. See Niedringhaus v.

8These factors are nonexclusive. See Niedrinahaus v. Commissioner, 99 T.C. 202, 211 (1992).

12 - Commissioner, 99 T.C. 202, 211 (1992); Petzoldt v. Commissioner, 92 T.C. 661, 700 (1989).

Respondent contends that the following factors are present in this case: (1) petitioner underreported his income for both years; (2) petitioner filed false documents for both years; (3) petitioner provided inbomplete or misleading information to his tax return preparer for both years; (4) petitionèr concealed income and assets for both years; (5) petitioner engaged in substantial cash transactions in both years; and (6) petitioner offered eimplausible or inconsistent explanations of his underreporting of income and his underpayment of tax for both years.

1.

Understating Income A pattern of substantially underreporting income for several yeårs is strong evidence of fraud, particularly if the understatement is not satisfactorily explained or due to innocent mistake. See Holland v. United States, 348 U.S. 171, 137-139 (1954); Spies v. United States, 317 U.S. at 499; Webb v. Commissioner, 394 F.2d at 379; Kurnick v. Commissioner, 232 F.2d 678, 681 (6th Cir. 1956), T.C.

Memo. 1955-31; Morse v. Commissioner, T.C. Memo. 2003-332; see also Green v. Commissioner, T.C. Memo. 2010-109 (finding that a satisfactory explanation may weigh against a finding of fraud).

On his original 2000 and 2001 Federal income tax returns, petitioner reported taxable income of $5,583.and $5,247, respectively. The p rties stipulated that petitioner underreported his taxable income by $223,955 and $676,393 for 2000 and 2001, respectively. Petitioner failed to report over 90% of his total taxable income for each of 2000 and 2001.

Although petitioner stipulated that he underreported·his incorne ön his 2000 and 2001 Federal income tax returns, he argues that the understatements do not constitute evidence of fraudulent intent because he lacked the expe ise to properly calculate his income and prepare his returns. He states that he sought;the assistance of a return preparer and argues that this fact supports a finding that petitioner lacked fraudulent intent.

A taxpayer who relies on a return preparer may not withhold information from the return preparer and then "escape responsibility for the fals tax returns which result." United States v. Garavaglia, 566 F.2d 1056, 1060 (6th Cir. 1977).

In addition, a taxpayer may not rely on his own accounting inexperience if the record shows that the taxpayer had sufficient business experience and should have known that his income was underreported. See Korecky (cid:0)570.Commissioner, 781 F.2d 1 66, 1569 (11th Cir. 1986), a_fff'g T.C. Memo. 1985-63.' In Korecky the taxpayer argued that he was inexperienced in financial mattei·s and that, therefore, he justifiably relied on his return preparer.

In upholdirig this' Court's finding of fraud,.the U.S. Court of Appeals for the Ninth Circuit stated:

It may be true that * * * [the taxpayer] had limited formal trair ing in accounting and finance and, as such, might not be expected to know all.of the tax and financial aspects of his business. However, he did have the practical experience gained from operating his own bÜsiness for over a decade. As such, he cannot be excused from keeping accurate records of sales receipts, which is a rather straightfo bookkeeping tásk. Moreover; a reasonåble person would>have known that the low sales receipts reported contradicted the thriving n e of his business and^his strong cash flow. Nor may * * * [the taxpayer] use reliance on his bookkeeper to excuse his conduct. Reliance on a bookkeeper or accountant is no defense to fraud if the taxpayer failed to provide the accountant "with all of the data necessary for maintaining complete and accurate records." Since A * * [the taxpayer] failed to furnish complete data on his sales receipts, he cannot clairn that his bookkeeper was at fault.

[M..; citations omitted:]

ard Mr. Colling testified that he relied on Vanover's summary statenients of income and expenses and:that petitioner did not provide or offer to pFOvide any supporting documents. Mr. Colling testified that he was unaware th petitioner used Vanover's business bank account to pay petitioner's personal e enses, such as the automobile and yacht purchases.⁹ .

.

9Petitioner testified that he told his retur prepa er, Mr. ColÍing, that he ed In the absence of corroborating evidence, we are not required)o accept Vanover's business bank account to pay personal expenses and purelsase,luxury items. petitioner's self-serving testimony. See Shea v. Commissioner, 11 (1999).

'].C. 183, 189 Petitioner provided inaccurate and incomplete information oir the summary statements of income and expenses that he gave to Mr. Colling.'° See Uñited States v. Garavaglia, 566 F.2d at 1059-1060. Petitioner cannot use his reliance on Mr. Colling to excuse his underreporting because petitioner failed·to provide Mr.

Colling with accurate and complete information regarding Vanover's income and expenses and petitioner's payment of personal expenses from Vanover's business income. See, e.g., Fuller v. Commissioner, T.C. Memo. 2007-62.

The record establishes that petitioner knew his income was-greater than that reported on his returns.

In 2000 petitioner applied for a line of credit from Ramey Ford and submitted an application on which he stated that he earned a salary of $30,000 per month.¹¹ Also in 2000, petitioner filed an initial petition for bankruptcy under chapter 13 of the Bankruptcy Code and, on the attached 1°Petitioner testified that either he or his assistant, Ms. Scott, 3rovided Mr. Colling with the summary statements of income and expenses. Peti ioner was not clear as to who in the Vanover office prepared these statements.

"Jack Long, who worked at Ramey Ford, testified that he wrote the $30,000 figure on the credit application. However, Mr. Long further testifie that he took the information over the phone from petitioner and that he believed the $30,000 figure was correct. Petitioner testified that he did ñot give the info Long.

ation to Mr.

schedules, reported that he earned a monthly salary of $6,700." In 2001 petitioner faxed to Jack Long of Ramey Ford financial information that indicät d that petitioner personally earned monthly gross incóme of $12,000 and that Vanover had average annual profits of $300,000 to $500,000 We find that petitioner underreported his income for 1999, 2000, and 2001.

Given the substantial amounts of the understàtements, petitioner's pattern of underreporting his income, and petitioner's lack of a satisfactory expl nation for the understatements, petitioner's understatements'are persuasive evid nce of fraudulent intent. See, e.g., Mòrse v. Commissioner, 419 F.3d at 832 2.

Filitig False Documents Fraudulent intent may be inferred when a taxpayer files a tax return intending to conceal, mislead, br prevent the collection of tax. See Spies v. United States, 317 U.S. at 499. Under section 7206(1), it is a crime for a taxpayer to file a return "which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be irue and orrect as'to "Ronald Cox represented petitioner in the bankruptcy matter and testified tliat petitioner supplied the $6,700 figur:e.

"At trial petitioner could not explain who cálculated this figure or how it was calculated. Petitioner testified that the handwriting löoked like that ofMs. Scott. Petitioner's signature appears on the document.

every material matter". As we have stated: "[i]n a criminal action under section 7206(1), the issue actually litigated and necessarily determined is Whether the taxpayer voluntarily and intentionally violated his or her known legal duty not to make a false statement as to any material matter on a return." Wright v.

Commissioner, 84 T.C. 636, 643 (1985).

Although a guilty plea in a criminal prosecution brought under section 7206(1) does not collaterally estop the taxpayer from asserting a defense to the civil fraud penalty for the same year, see id. at 641, the guilty plea collaterally estops the taxpayer from denying that he willfully filed a false return that year, see Curry v. Commissioner, T.C. Memo. 1991-102. A conviction undet section 7206(1)"is highly persuasive evidence that the taxpayer intended td evade tax."

Morse v. Commissioner, T.C. Memo. 2003-332; see also Stefansson v.

Commissioner, T.C. Memo. 1994-162; Avery v. Commissioner, T.

. Memo.

1993-344; Miller v. Commissioner, T.C. Memo. 1989-461.

Petitioner pleaded guilty to willfully making and subscribing a Form 1040 for 2001 in violation of section 7206(1).

In his plea agreement, peti ioner admitted that he filed false individual income tax returns for 1999, 2000, and 2001. Petitioner's admissions are clear and convincing evidence that petitioner filed false Federal income tax returns for 1999, 2000, and 2001.

3.

Providing Incomplete or Misleading Information to One's Return Preparer Evidence that a taxpayer provided incomplete or misleading information to his return preparer is circumstantial evidence of fraud. See Morse v.

Commissioner, 419 F.3d at 823-833. A taxpayer acts fraudulently when he conceals income from his return preparer. See Korecky v. Commissioner, 781 F.2d at 1569; Patel v. Commissioner, T.C. Memo. 2008-223; Morse v.

Commissioner, T.C. Memo. 2003-332.

Petitioner provided Mr. Colling with summary statements of Vanover's income and expenses. When questioned, petitionsr was evasive as t who actually prepared the summary statements of income and expenses and at one point testified that either he or Ms. Scott prepared the summary statements for Mr.

Colling. Although petitioner testified that the summary statements of income and expenses were prepared using the information in the dome book, peti:ioner did not introduce the dome book or the summary statements into evidence to corroborate his testimony.

Mr. Colling credibly testified that he prepared petitioner's retuhis using the information petitioner provided on the summary statements of income and expenses. Mr. Colling further testified that petitioner did not inform him that petitioner.used Vanover's business bank åccount to pay personal expenses and to purchase luxury.items. We fmd that petitioner provi'ded Mr. Collin with incomplete and inaccurate information.

4.

Concealing Assets or Income An intent to evade tax may be inferred by "concealment of assets or covering up sources of income". Spies v. United States, 317 U.S. a 499. A taxpayer's use of a business to conceal the personal nature of expenses is also evidence of fraud. See Benes v. Commissioner, 42 T.C. 358, 383 (1964), aff'd, 355 F.2d 929 (6th Cir. 1966); Evans v. Commissioner, T.C. Memo. 2010-199; Romer v. Commissioner, T.C. Memo. 2001-168. But see Knutsen-Rowell, Inc: v.

Commissioner, T.C. Memo. 2011-65 (finding that the use of corporate funds to pay personal expenses was "the result of seeking convenience and I ck of attention to detail rather than a conscious and clever scheme to avoi Federal ' income taxes"). The mere existence of a paper trail documenting a taxpayer's income or expenses does not negate a finding of fraudulent intent. See Evans v.

Commissioner, T.C. Memo. 2010-199.

In connection with his section 7206(1) pléa agreement, petitiòner admitted that his unreported income "was derived primarily from his use of tlhe business accounts to purchase or make payments on collector automobiles and motorcycles 20 - as well as payments on several boats and other personal expenses." Petitioner testified that he paid personal expenses, such as his mortgage and utility bills, using funds from Vanover's business bank account.

In June 2001 petitioner purchased a yacht for $159,000 and used Vanover's business bank account to pay for it.

, .

By paying personal expenses with checks drawn on Vanover's business - bank account, petitioner disguised his personal expenses as business expenses.

See, e.g., Romer v. Commissioner, T.C. Memo. 2001-168. Although petitioner argues that the collector automobiles and the yacht were business assets, the record does not support such a finding." In particular, petitioner titled most of the automobiles in his name, not in Vanover's name.

We find that petitioner concealed income by using Vanover's business bank account to purchase collector automobiles and a yacht and to pay personal expenses.

"Petitioner testified that he started the automobile collection an another line of business and that he planned to purchase classic automobiles, repair them, and sell them for profit. Petitioner's activity with respect to the Vanover Collection was limited to renting a storage facility, buying cars, and hanging sigis. On petitioner's application to lease the warehouse space, his real estate agent wrote the following: "Óur unit is not leased to do flooring business. It is to be used only as a storage for his personal car collection." Petitioner's financial statement that us attachål to the lease application also includes language to that effeòt.

5.

Extensive Dealings in Cash Extensive dealings in cash to avoid scrutiny of a taxpayer's finances is a badge of fraud. See Bradford v. Commissioner, 796 F.2d at 307-308. Fraudulent intent may be inferred when a taxpayer handles his affairs in a manner designed "to avoid making the records usual in transactions of the kind". Spies v. United States, 317 U.S. at 499. In particular, when a taxpayer's dealings in ash are accompanied by attempts to conceal transactions or avoid cash transaction reporting requirements, that course of conduct is probative evidence of fraud. See Valbrun v. Commissioner, T.C. Memo. 2004-242. .

Petitioner stipulated that in 2000, he purchased twó automobiles in cash--a 1940s Willys Coupe for $60,000 and a 1967 Chevrolet Corvette for 32,500.

Respondent introduced copies of checks drawn-on Vanover's business bank account and made payable to cash, including seven checks for $9,00 each and one for $2,000. Petitioner testified that he withdrew amounts of less han $10,000 because "if I take anything over.$10,000, $10,000 or more, I would subject myself to the possibility of an audit".

Petitioner's testimony supports a finding that he intended to*av3id reporting requirements that would be triggered if he withdrew larger amounts óf cash.

Petitioner's two car purchases in cash, in 2000, totaled $92,500, almost half of his . - 22 - total income for 2000. We find that petitioner engáged in cash transáctions to avoid reporting requirements and to minimize the possibility of an addit.

6.

Implausible or Inconsistent Explanations A taxpayer's implausible or in*consistent explanations for his á: tions may constitute circumstantial evidence of fraudulent intent. See Bradford v.

Commissioner, 796 F.2d at 307 08; Bahoric v. Commissioner, 363 F.2d 151, 153 (9th Cir.. 1966); Gagliardi v. United States, 81 Fed. Cl. 772, 784 (200 ). Petitioner gave inconsistent and implausible explanations for his conduct throughout the trial and on brief. Although petitioner argue(cid:0)541on brief that he neither underreported income nor filed false returns, petitioner stipulated that he understate income on his tax returns for 2000 and 2001,,petitioner pleaded guilty to the charge of willfully submitting a false income tax;retum fòr taxable year 2001, nd, in connection with his guilty plea, petitioner admitted that he underrepo ed income and filed false tax returns for 1999i2000, and 2001.

Petitioner also argues that he did not report all of his income because he operated his previous hardwood flooring business as a sole proprietorship and he did not realize the significance of incorporating his business or that there was a difference between'himself and the business. Petitioner also argues>tlhat he did not report all of his income because he was overwhelmed by the volume èf Vanover's records and did not have the accounting expertise to understand those records. We do not accept this testimony as credible.

Finally, petitioner argues that he lacked the intent to evade tafand therefore we cannot find him liable for the civil fraud penalties. Petitioner pomts to the fact that, with the assistance of Ms. Way, he was able to file amended re urns that the IRS accepted without adjustment." However, we find that it is more reasonable to infer from petitioner's course of conduct that his true intention was t conceal substantially all of his income and to take his chances that the fraud would not be discovered. Our finding is supported by the fact that petitioner did not amend his returns until after respondent began a criminal investigation of those returns.

Petitioner relies on Gaaliardi, 81 Fed. Cl. 772, to support his a gument that he lacked fraudulent intent. Petitioner urges us to find that he lacked fraudulent intent because, like the taxpayers in Gaaliardi, he acted negligently, nd not with a "The fraud was committed when petitioner filed his original returns. See United States v. Habig, 390 U.S. 222 (1968); Plunkett v. Commissioner, 465 F.2d 299, 302-303 (7th Cir. 1972), aff'g T.C. Memo. 1970-274; Hill v. Cornmissioner, T.C. Memo. 1997-425; see also George M. Still, Inc. v. Commissioner, 19 T.C. 1072, 1077 (1953) ("Any other result would make sport of the so-called fraud penalty. A taxpayer who had filed a fraudulent return would merely take his chances that the fraud would not be investigated or discovered, and tlÅen, if an investigation were made, would simply pay the tax which he owed anyhow and thereby nullify the fraud penalty."), aff'd, 218 F.2d 639 (2d Cir. 1955).

specific purpose to evade tax. However, petitioner has not advanced a plausible .T²⁴ - argument of the type accepted in Gagliardi.¹⁶ III.

Conclusion Respondent has proven by clear and convincing evidence that petitioner underpaid his tax liabilities for 2000 and 2001 and that some part of netitioner's underpayment for each year was due to fraud. Petitioner bears the burden of showing by a preponderance of the evidence what portion of each underpayment, if any, is not attributable to fraud. See sec. 6663(b). Petitioner has n t argued or introduced any credible evidence to prove that any specific portion o either underpayment was not attributable to fraud. Rather, petitioner argue only that no portion:of either underpayment was attributable to fraud because he lacked the intent to evade income tax. The record overwhelmingly establishes to the contrary. Accordingly, we hold that petitioner is liable for the section!6663 civil fraud penalties as determined by respondent.

16In Gaaliardi v. United States, 81 Fed. Cl. 772, 786 (2008), the U.S. Court of Federal Claims ordered a refund of the fraud penalties the taxpaye s had paid. The court found plausible the taxpayers' argument that the underrepo ing of income was due to miscommunication and misunderstanding when th taxpayers transferred bookkeeping responsibilities from their longstanding accountant and return preparer to a newly hired, in-house bookkeeper. The court concluded that the taxpayers lacked the specific intent to evade tax. e cannot reach a similar conclusion on the record before us.

Id. at 185-786.

We have considered all the other arguments made by the parties, and to the extent not discussed above, find those arguments to be irrelevant, moot, or without merit.

To reflect the foregoing, Decision will be entered for respondent.

56. T.C. 213, 223-224 (1971). Any conduct likely to mislead or conceal may constitute an affirmative áct of evasion, see Spies v. United States, 3 7 U.S. 492, 499 (1943), and an intent to mislead may be inferred from a pattern of such conduct, see Webb v. Commissioner, 394 F.2d 366, 379 (5th Cir.'1968), af£g T.C.
96. T.C. 858, 873.(1991), aff'd, 959 F.2d 16 (2d Cir. 1992). If the Co issioner proves that any portion of an underpayment is attributable to fraud, then the entire underpayment shall be treated as'attributable toifraud unless the taxpayer shows by a preponderance ofthe evidence that a portion was not so attributable< Sec.