223 F.3d 642 (7th Cir. 2000)
STEVEN H. TOUSHIN, Petitioner-Appellant,v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
No. 99-3963
In the  United States Court of Appeals  For the Seventh Circuit
Argued June 7, 2000Decided August 2, 2000

Appeal from the United States Tax Court.  No. 21724-92--Juan F. Vasquez, Judge.[Copyrighted Material Omitted]
Before POSNER, COFFEY and RIPPLE, Circuit Judges.
COFFEY, Circuit Judge.


1
On October 27, 1988, a  jury sitting in the Northern District of Illinois  convicted the petitioner Steven H. Toushin  ("Toushin") of filing false income tax returns  for the taxable years of 1980, 1981, and 1982,  but this court reversed his conviction due to an  improper jury instruction. See United States v.  Toushin, 899 F.2d 617 (7th Cir. 1990). Before his  second trial commenced, Toushin agreed to plea  guilty to one count of filing a false income tax  return for the 1980 tax year, and was sentenced  to time already served.


2
Thereafter, on July 1, 1992, the Internal  Revenue Service ("IRS") initiated a civil  proceeding against Toushin to recover unpaid  income taxes. Concluding that Toushin  fraudulently under-reported his income for the  taxable years of 1980, 1981, and 1982, the IRS  issued a notice of tax deficiency and levied  penalties for fraud as well as substantial  underpayment for those years. He then sought  review in the United States Tax Court, which  sustained the IRS's determination after a four  day bench trial. Toushin appeals the judgment of  the Tax Court, arguing that the court erred in  calculating his unreported income for the tax  years of 1980, 1981 and 1982, and in concluding  that he fraudulently under-reported his income.  We AFFIRM.

I.  BACKGROUND

3
During the 1970s, Toushin was a partner in an  enterprise that owned and operated several  theaters, including the Bijou Theater1 in  Chicago, Illinois. As a result of a dispute among  the partners of the enterprise, the assets were  placed into receivership from 1976 until 1978 in  order that they might achieve a more accurate  accounting of the daily receipts and deposits.


4
During this receivership period, Toushin  experienced severe financial difficulties--he  borrowed money from relatives, was frequently  overdrawn on his personal checking account and  took a job as a janitor at his in-law's business.  When he gained control of the Bijou theater in  1978, his financial situation began to improve  dramatically after he began "skimming cash  proceeds from" the theater.2


5
As previously mentioned, on August 8, 1991,  Toushin agreed to plea guilty to filing a false  income tax return for the 1980 tax year. In the  plea agreement, Toushin made several admissions


6
during the calendar year 1980, . . . he received  income from skimming cash proceeds from  Entertainment and Amusement, Inc., through  operation of the Bijou Theater, which additional  income he knew he was required to report and  which he knowingly did not inform his accountant  of, thereby evading inclusion of that cash income  on his joint individual tax return for 1980. . .  . He agrees that the amount of the unreported  skimmed cash income for 1980 totalled [sic]  approximately $59,411.35.


7
Based in part on this admission, the IRS levied  penalties for fraud and substantial underpayment  for the tax years of 1980, 1981 and 1982, and  also initiated a civil proceeding against Toushin  to recover unpaid taxes for those years. On May  20, 1999, the Tax Court affirmed the IRS's  determination, concluding that the I.R.S. had  "established by clear and convincing evidence an  underpayment of tax for 1980, 1981, and 1982" and  that the I.R.S. had "clearly and convincingly  proven that the entire underpayments of tax for  1980, 1981, and 1982 were due to fraud."3  Toushin v. Commissioner, No. 21724-92, T.C. Memo  1999-171, 1999 WL 317336 (U.S. Tax Ct. May 20,  1999). Toushin appeals.

II.  ISSUES

8
On appeal, Toushin argues that: (1) the Tax  Court erred in calculating his unreported income  for the 1981 and 1982 tax years; and (2) the  court erred in determining that he fraudulently  underreported his income in the 1981 and 1982 tax  years.

III.  ANALYSIS
A.  Cash on Hand

9
We note at the outset that Toushin on appeal  does not contest the Tax Court's finding that he  underreported his income in 1980 and that his  underreporting for that year was fraudulent. But  Toushin contends that the Tax Court erred in  calculating his unreported income for 1981 and  1982 by failing to account for cash he had on  hand4 prior to 1980. He argues that his  unreported income for 1981 and 1982 is  attributable to nontaxable sources, namely  $80,000 cash that he allegedly had in his home  safe as of January 1, 1980.5


10
"[W]e apply the same standards of review to a  Tax Court decision that we apply to district  court determinations in a civil bench trial: We  review questions of law de novo; we review  factual determinations, as well as application of  legal principles to those factual determinations,  only for clear error." Cline v. Commissioner, 34  F.3d 480, 484 (7th Cir. 1994). "A finding of fact  can be reversed as clearly erroneous only when  the reviewing court on the entire evidence is  left with the definite and firm conviction that  a mistake has been committed." Coleman v.  Commissioner, 16 F.3d 821, 826 (7th Cir. 1994).  Further, "this court, in determining whether  there is substantial evidence to support a  finding of fact by the Tax Court, must view the  evidence in the entire record in the light which  is most favorable to the finding." Pittman v.  Commissioner, 100 F.3d 1308, 1313 (7th Cir.  1996).


11
Toushin argued before the Tax Court that "he  had a cash hoard [cash on hand] of at least  $80,000 in his home safe as of [January 1,  1980]." But the Tax Court found his testimony  less than credible


12
Petitioner admitted in his guilty plea that he  had unreported skimmed income from the Bijou in  1980 totaling $59,411. This figure was computed  based on cash on hand of $0 as of January 1,  1980. By his plea, petitioner thus implicitly  admitted that he had no cash hoard [cash on hand]  as of January 1, 1980. Additionally, there is  ample evidence that petitioner experienced  serious financial problems between 1976 and 1978  when his assets were in receivership.  Petitioner's allegations of a cash hoard was  inconsistent, implausible, and not supported by  objective evidence in the record.


13
Upon review of the record, we agree with the  Tax Court and are convinced that the court had a  reliable basis on which to find that Toushin did  not have any cash on hand as of January 1, 1980.  The record reflects that he was forced to borrow  money from relatives in 1975 and 1976, worked as  a janitor in 1976, overdrew his checking account  in 1978 and 1979, had about $75 in his checking  account at the end of 1979 and had closed his  savings account in 1979. Furthermore, Toushin  borrowed money from his business enterprise  (Entertainment & Amusement, Inc.) in 1979, failed  to make timely payments on his credit cards in  1978 and 1979, paid for a plane ticket in 1979 in  installment payments and was denied a loan in  1979 after furnishing a financial statement that  did not list any cash as an asset. Toushin also  borrowed money from his in-laws in 1979 to  purchase a condominium but failed to repay the  loan through December of 1979. Indeed, Toushin's  dire economic circumstances prior to January 1,  1980 are highly inconsistent with his allegation  that he had $80,000 cash on hand. Thus, in light  of the substantial evidence of his difficult  economic situation, we conclude that the Tax  Court's conclusion that he had no cash on hand as  of January 1, 1980 was not clearly erroneous.6  We are of the opinion that the Tax Court's  calculation of his unreported income for the tax  years of 1981 and 1982 was proper.

B.  Fraud

14
Next, Toushin contends that the Tax Court erred  in finding that his underpayment of tax in 1981  and 1982 was due to fraud under 26 U.S.C. sec.  6653.7 Specifically, he claims that his  underpayment of taxes was, in fact, due to a good  faith mistake as he reported his unreported  income on the corporate return of an adult  theater business he owned in California.


15
The IRS bore the burden of proof to establish  by clear and convincing evidence that Toushin's  underpayment (or "any part" of his underpayment)  of tax in 1981 and 1982 was due to fraud. See 26  U.S.C. sec. 7454(a); Pittman, 100 F.3d at 1319.  Furthermore, "[a] finding of fraud by the Tax  Court is a finding of fact that will not be set  aside unless clearly erroneous." Pittman, 100  F.3d at 1319.


16
To establish fraud, the IRS must demonstrate by  clear and convincing evidence that the taxpayer  intended to evade taxes that he knew or believed  he owed. See Pittman, 100 F.3d at 1319; Granado  v. Commissioner, 792 F.2d 91, 93 (7th Cir. 1986).  Because there is rarely direct evidence of a  taxpayer's state of mind, the IRS may establish  fraudulent intent through circumstantial  evidence. See Pittman, 100 F.3d at 1319. Indeed,  "'[t]here is nothing novel about establishing a  crime through the use of circumstantial evidence,  for . . . circumstantial evidence is not less  probative than direct evidence, and, in some  cases is even more reliable.'" United States v.  Ranum, 96 F.3d 1020, 1026 (7th Cir. 1996)  (quoting United States v. Hatchett, 31 F.3d 1411,  1421 (7th Cir. 1994)). "[C]ommon sense should be  used to evaluate what reasonably may be inferred  from circumstantial evidence." United States v.  Briscoe, 896 F.2d 1476, 1506 (7th Cir. 1990)  (citation omitted).


17
In Spies v. United States, the Supreme Court  stated that


18
We would think affirmative willful attempt [to  defeat and evade taxes] may be inferred from  conduct such as keeping a double set of books,  making false entries or alterations, or false  invoices or documents, destruction of books or  records, concealment of assets or covering up  sources of income, handling of one's affairs to  avoid making the records usual in transactions of  the kind, and any conduct, the likely effect of  which would be to mislead or to conceal.


19
317 U.S. 492, 499 (1943); see Pittman, 100 F.3d  at 1319.


20
In this case, the Tax Court found, and we  agree, that Toushin exhibited several indicia of  fraud


21
The evidence establishes that petitioner  consistently and substantially understated his  income in 1980, 1981 and 1982. Petitioner  maintained inadequate records for . . . his  businesses. Petitioner destroyed existing records  at the Bijou and instructed [the manager of the  Bijou] to destroy any records kept. . . .  Petitioner attempted to disrupt the IRS's  criminal investigation by sending [the manager of  the Bijou] on vacation and counseling [him] to  lie to agents when questioned. . . .


22
We find that [the IRS] has clearly and  convincingly proven that the entire underpayments  of tax for 1980, 1981, and 1982 were due to  fraud.


23
See also Estate of Upshaw v. Commissioner, 416  F.2d 737, 741 (stating that "a consistent pattern  of understatement of substantial amounts of  income" and "[t]he failure to keep such accurate  records is a strong indicum of fraud with intent  to evade taxes"). We also note that Toushin  admitted to "skimming cash proceeds" from the  Bijou Theater and pled guilty to filing a false  income tax return for 1980. The record is replete  with evidence in support of the Tax Court's  finding that Toushin clearly demonstrated that he  deliberately evaded paying taxes. The Tax Court  did not commit clear error in concluding that the  IRS clearly and convincingly demonstrated that  his underpayment of tax in 1981 and 1982 was due  to fraud. See Pittman, 100 F.3d at 1320.


24
Because Toushin's arguments on appeal are  utterly meritless, we also give Toushin 14 days  to show cause why he should not be sanctioned for  filing a frivolous appeal. See Fed. R. App. P.  38; Cohn v. Commissioner, 101 F.3d 486, 487 (7th  Cir. 1996) (per curiam).

The judgment of the Tax Court is

25
AFFIRMED.



NOTES:


1
 An adult sex business was conducted in the Bijou  Theater, which included the selling of sex  paraphernalia and booths for sexual encounters.


2
 As the Tax Court found, with the cash he skimmed  from the Bijou, during 1978 and 1979, Toushin  "pa[id] for family expenses. . . . [and] gave his  wife $400 (later $600) a week in 'walking around  money.' He made cash purchases of expensive items  such as a luxury automobile and a mink coat. He  also paid for the family's vacations in cash."


3
 The IRS had determined that Toushin underreported  his income by $59,411 in 1980, $57,656 in 1981  and $43,757 in 1982. Commonly referred to as the  "cash method," the IRS calculated his unreported  income as the amount that his cash expenditures  exceeded his sources of cash (including cash on  hand at the beginning of the tax period in  question) for the particular year. See United  States v. Hogan, 886 F.2d 1497, 1509 (7th Cir.  1989).


4
 Commonly referred to as "cash hoard."


5
 Toushin contends that his $80,000 cash on hand  was comprised of
$40,000 he earned from the  Bijou from 1971 to 1975; a $30,000 check dated  April 19, 1978 that he received from the Bijou  receiver; a $3720 check dated March 8, 1979 that  he received from the Bijou receiver; a $1438  money order from Amalgamated Bank in July 1978;  and a $5000 inheritance from his grandmother in  1976.


6
 Toushin also contends that the appearance of  financial difficulties are explained by the fact  that he tried to hide assets from his wife to  make himself look impoverished at the time of his  divorce. Contrary to his assertion, the Tax Court  found Toushin's testimony about his financial  troubles "vague and contradictory." Because we  defer to the Tax Court on credibility findings,  see Fed. R. Civ. P. 52(a); Cline, 34 F.3d at 487;  Gold Emporium, Inc. v. Commissioner, 910 F.2d  1374, 1379 (7th Cir. 1990), and based on the  above recounted evidence in the record, we are  convinced that the Tax Court was justified in  rejecting his argument.


7
 In 1980 and 1981, 26 U.S.C. sec. 6653(b) provided  that "[i]f 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 50 percent of the underpayment." In  1982, section 6653(b)(1) & (2) provided the same  penalty plus a penalty amount "equal to 50  percent of the interest payable under section  6601 [Interest on Underpayments]."


