                         T.C. Memo. 1997-425



                       UNITED STATES TAX COURT



                  DAVID W. HILL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20815-95.               Filed September 22, 1997.



     Glen A. Stankee, for petitioner.

     William B. McCarthy, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:    Respondent determined deficiencies in

petitioner's Federal income taxes and fraud penalties as follows:


                                            Penalty
        Year           Deficiency         Sec. 6663(a)

        1989           ($953.00)          $33,753.00
        1990            (241.00)           16,511.25
        1991           2,640.83            44,903.12
                                - 2 -

     After concessions, the only issue for decision is whether

petitioner is liable for penalties for fraud under section

6663(a)1 for the taxable years 1989, 1990, and 1991.


                           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 Panama City, Florida, at the

time he filed his petition.    During all the years in issue,

petitioner was married to, and filed joint Federal income tax

returns with, Janice D. Hill.

     During the years in issue, petitioner was employed by Bay

Point Yacht and Country Club, Inc. (Bay Point, Inc.), as the

director of property operations.    The property operations

department of Bay Point, Inc., through its own employees and

various subcontractors, performed repair, maintenance, and

landscaping work, as well as light construction at Bay Point

Yacht and Country Club.2    The property operations department


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
     2
      Bay Point Yacht and Country Club is a 1,100-acre planned
unit development located in Panama City, Florida. Bay Point
Yacht and Country Club, Inc., served as the developer of Bay
Point Yacht and Country Club and continues to own and operate
some of its ongoing businesses, such as its golf business, its
maintenance and landscaping business, and its marina.
                                - 3 -

operated with an annual budget between $1.2 million and $1.6

million.    In his capacity as director of property operations,

petitioner oversaw the entire operation of the department and

supervised as many as 70 employees, as well as a number of

subcontractors.    These subcontractors performed various tasks at

Bay Point Yacht and Country Club that could not be performed by

employees of Bay Point, Inc.    One of petitioner's duties as

director of property operations was to determine whether his own

employees could perform a specific task.    If petitioner found

that his own employees could not perform the job, he would then

retain a subcontractor on behalf of Bay Point, Inc., to complete

the work.

     James Hall was a subcontractor retained by petitioner on

behalf of Bay Point, Inc.    During the years in issue, Mr. Hall

made a series of cash payments to petitioner in the following

amounts:    $142,377 in 1989; $76,450 in 1990; and $180,609 in

1991.   Petitioner received cash payments from Mr. Hall

approximately every other week.    Petitioner did not report any of

the payments from Mr. Hall on his original Federal income tax

returns filed for the taxable years 1989, 1990, and 1991.

     On June 8, 1992, following an internal investigation of

petitioner’s department, the president of Bay Point, Inc.,

William F. Spann, requested and received petitioner’s

resignation.
                                 - 4 -

     In addition to his employment with Bay Point, Inc.,

petitioner operated a construction consulting business as a sole

proprietorship.   In the conduct of his own business, petitioner

utilized the services of various subcontractors.      Petitioner

maintained records showing the individual payments made to these

subcontractors throughout the year.      Petitioner compiled these

individual payments and timely provided each subcontractor with a

requisite Form 1099 reflecting the sum of the payments.

     During the taxable years 1989, 1990, and 1991, petitioner

was also a shareholder of an S corporation known as Aquamar

Production Research Corp. (Aquamar).      Petitioner’s interest in

Aquamar ranged from 13 to 14 percent.      In 1990 and 1991,

petitioner was a general partner in a real estate partnership

known as Skyview Development.    Petitioner had a 33.33-percent

profits and loss interest in Skyview Development.      In addition,

petitioner and his wife also owned various rental properties

during the years in issue.

     On or before April 15 of each of the taxable years in issue,

petitioner filed an Application for Automatic Extension of Time

to File U.S. Individual Income Tax Return (Form 4868).

Petitioner timely filed his 1989, 1990, and 1991 Federal income

tax returns on or about August 14, 1990, August 15, 1991, and

August 15, 1992, respectively.
                                - 5 -

     Petitioner’s returns for the taxable years 1989, 1990, and

1991 were prepared by Fred Pressley.3   Mr. Pressley prepared

petitioner’s returns based upon documentation supplied to him by

petitioner.    The records maintained by petitioner included the

Forms 1099 referred to above, rental income and expense records,

and records pertaining to the operations of his consulting

company.   Petitioner provided Mr. Pressley with documentation for

expense items in amounts as small as $3.26.   Petitioner also

provided Mr. Pressley with Partner's Share of Income, Credits,

Deductions, Etc. (Schedule K-1's) from Aquamar and Skyview

Development.

     During the preparation of petitioner’s 1989 tax return,

petitioner informed Mr. Pressley that he had received income from

Mr. Hall, but had not received a Form 1099 from Mr. Hall.

Petitioner did not give Mr. Pressley information regarding the

amount of income he had received from Mr. Hall.    Mr. Pressley

initially advised petitioner to obtain a Form 1099 from Mr. Hall;

however, petitioner informed Mr. Pressley that he would not be

able to obtain the Form 1099 by the due date of the return.     Mr.

Pressley then advised petitioner that it would be appropriate to

estimate the amount of the income, report that estimate on the

     3
      Mr. Pressley’s work experience is primarily in hotel
management and the laundry and dry cleaning services. In 1978,
Mr. Pressley was employed by H & R Block as a seasonal tax return
preparer. Mr. Pressley operated his own tax service from 1980
until 1987. He continued to prepare income tax returns on a
part-time basis until 1993.
                                - 6 -

return, and subsequently amend the return upon receipt of the

correct information.   Petitioner instructed Mr. Pressley that he

would rather file his return for 1989 based on the documentation

that he had at that time.   Petitioner’s 1989 Federal income tax

return did not reflect any income received from Mr. Hall.

     During the preparation of petitioner’s 1990 tax return, Mr.

Pressley again urged petitioner to obtain the information from

Mr. Hall, or, in the alternative, to estimate the amount of money

received from Mr. Hall.   Petitioner’s 1990 Federal income tax

return did not reflect any income from Mr. Hall.    Similarly,

petitioner’s 1991 Federal income tax return did not reflect any

income he received from Mr. Hall.

     In October 1992, respondent began an examination of Mr. Hall

regarding his 1989, 1990, and 1991 taxable years.    James T.

Givens, a revenue agent for the Internal Revenue Service,

conducted the examination of Mr. Hall.   The main issue in this

examination concerned the deduction of expenses on Mr. Hall’s

returns.   Mr. Givens requested documentation from Mr. Hall in

order to verify the payment of these expenses.   Petitioner was

the largest recipient of these payments.

     Mr. Hall engaged Roger Clark to reconstruct his records.

Based on his reconstruction, Mr. Clark prepared an affidavit for

petitioner's signature in order to substantiate Mr. Hall's

deduction for contract labor.   On November 21, 1992, petitioner

signed an affidavit stating that he "received cash payments from
                                 - 7 -

James E. Hall and/or Gulf Coast Construction[4] for fees for

construction consulting, materials and commissions" in the

following amounts:

                                      Amount
                  Year               Received

                  1989             $142,377.00
                  1990               76,450.00
                  1991              180,608.50

                   Total           $399,435.50


     In February 1993, Mr. Clark prepared Forms 1099 for Mr.

Hall.    Shortly thereafter, petitioner received Forms 1099 for

1989, 1990, and 1991 from Mr. Hall.      These Forms 1099 reflect the

same amounts as stated in petitioner's affidavit signed in

November 1992.

     Mr. Givens ascertained that the payments from Mr. Hall had

not been reported on petitioner’s original Federal income tax

returns.    Mr. Givens spoke with petitioner on February 3, 1993,

by telephone.    During this conversation, Mr. Givens identified

himself and requested a meeting with petitioner the following

day, February 4, 1993.     Mr. Givens advised petitioner that his

returns for 1989, 1990, and 1991 were under examination and to

bring copies of his tax returns for those years and all records

available that were used to prepare them.       Petitioner

     4
      There is no explanation in the record regarding Gulf Coast
Construction. However, we assume that it was a business name for
Mr. Hall, since petitioner has stipulated that these amounts were
received from James Hall.
                                   - 8 -

subsequently called Mr. Givens to reschedule the meeting for

February 11, 1993.

       On February 9, 1993, petitioner signed an Amended U.S.

Individual Income Tax Return (Form 1040X) for each taxable year

in issue.      These amended returns, prepared by Mr. Clark and filed

with respondent, reflect the payments petitioner received from

Mr. Hall in the amounts as stated in petitioner's November 21,

1992, affidavit.      The original and amended returns reveal the

following taxable income and total taxes for the years in issue:


                  Original Returns              Amended Returns
Year           Taxable Income   Taxes       Taxable Income   Taxes

1989             $40,010        $9,931         $182,387       $55,888
1990              20,582         3,086           97,032        25,342
1991              67,157        16,713          252,840        73,943


The increased tax liability resulting from the inclusion of the

payments from Mr. Hall, as reflected on the amended returns, was

paid by petitioner with the filing of the amended returns.

       In the notice of deficiency, respondent determined that

petitioner's correct taxable income and taxes, after adjustments

and corrections, were as follows:


                             Taxable              Total Tax
        Year                 Income               Liability

        1989               $182,387.00           $54,935.00
        1990                 96,302.00            25,101.00
        1991                256,237.19            76,583.83
                               - 9 -

These adjustments and corrections resulted in the overassessments

and deficiency reflected in the notice of deficiency issued to

petitioner.   In addition, respondent determined that the

difference between the taxes as stated in petitioner's original

Federal income tax returns for 1989, 1990, and 1991, and the

corrected taxes for those years, is subject to the fraud penalty

under section 6663(a).   Sec. 1.6664-2(c), Income Tax Regs.


                              OPINION


     The only issue for decision is whether petitioner is liable

for the fraud penalty for each of the years 1989, 1990, and 1991.

Section 6663(a) provides that 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.    In order to

establish petitioner's liability for fraud, respondent bears the

burden of proving by clear and convincing evidence:    (1) An

underpayment exists for each of the years in issue; and (2) that

some portion of the underpayment is due to fraud.5    Sec. 7454(a);



     5
      Section 6663(b) provides:

     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.
                               - 10 -

Rule 142(b); Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989);

Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

     In the instant case, petitioner does not contest the

existence of underpayments for taxable years 1989, 1990, and

1991.    Thus, the sole issue for us to decide is whether

respondent has proved by clear and convincing evidence that some

portion of each underpayment is due to fraud.    Fraud is defined

as an intentional wrongdoing designed to evade tax believed to be

owing.   Petzoldt v. Commissioner, supra at 698.   The existence of

fraud is a question of fact to be resolved upon consideration of

the entire record.    Gajewski v. Commissioner, 67 T.C. 181, 199

(1976), affd. without published opinion 578 F.2d 1383 (8th Cir.

1978).    Respondent's burden is met if it is shown that petitioner

intended to evade taxes known to be owing by conduct intended to

conceal, mislead, or otherwise prevent the collection of such

taxes.   Petzoldt v. Commissioner, supra at 699.   Fraud will never

be presumed.    Beaver v. Commissioner, 55 T.C. 85, 92 (1970).

Direct evidence of the requisite fraudulent intent is seldom

available; thus, fraud may be proved by circumstantial evidence

and reasonable inferences drawn from the facts.    Spies v. United

States, 317 U.S. 492, 499 (1943); King's Court Mobile Home Park

v. Commissioner, 98 T.C. 511, 516 (1992).    The taxpayer's entire

course of conduct may establish the requisite intent.       Otsuki v.

Commissioner, 53 T.C. 96, 106 (1969).
                              - 11 -

     Courts have relied on a number of indicia of fraud, and the

existence of several factors is persuasive circumstantial

evidence of fraud.   Solomon v. Commissioner, 732 F.2d 1459, 1461

(6th Cir. 1984), affg. T.C. Memo. 1982-603.   The factors relevant

here are:   (1) Substantial understatements of income; (2) dealing

in excessive amounts of cash; (3) maintenance of inadequate

records; and (4) implausible or inconsistent explanations of

behavior.   Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.

1986), affg. T.C. Memo. 1984-601.   Upon examination of the entire

record, we conclude that petitioner's underpayment of Federal

income taxes for 1989, 1990, and 1991 is attributable to fraud.

     Petitioner substantially understated his taxable income on

the original Federal income tax returns filed for each of the

years in issue.   Such consistent and substantial understatement

of income constitutes strong evidence of fraudulent intent.

Grudin v. Commissioner, 536 F.2d 295, 296 (9th Cir. 1976), affg.

T.C. Memo. 1974-251; Ruark v. Commissioner, 449 F.2d 311, 313

(9th Cir. 1971), affg. T.C. Memo. 1969-48; Otsuki v.

Commissioner, supra at 107-108; see also Rogers v. Commissioner,

111 F.2d 987, 989 (6th Cir. 1940), affg. 38 B.T.A. 16 (1938)

(held that discrepancies of 100 percent and more between real net

income and the reported income for 3 successive years strongly

evidence an intent to defraud the Government).   We are mindful

that fraud cannot be inferred from a mere inadvertent

understatement of income.   Holland v. United States, 348 U.S.
                                - 12 -

121, 137 (1954)    However, petitioner's understatements of income

in each of the 3 years involved were both substantial in amount

and in proportion to the amounts reported on his original Federal

income tax returns.6

     Extensive dealing in large amounts of cash also constitutes

evidence of fraud.     Estate of Mazzoni v. Commissioner, 451 F.2d

197, 202 (3d Cir. 1971), affg. T.C. Memo. 1970-37.      Petitioner

received cash payments from Mr. Hall approximately every other

week.    These cash payments totaled $142,377 in 1989, $76,450 in

1990, and $180,608 in 1991.    The reason that dealing in large

amounts of cash is evidence of fraud is that cash is difficult to

trace unless the taxpayer maintains contemporaneous and accurate

records.

     Petitioner kept no records to reflect accurately his receipt

of large amounts of cash income.    The failure by a knowledgeable

taxpayer to maintain adequate records is evidence of fraud.

Galant v. Commissioner, 26 T.C. 354, 365 (1956).       Petitioner was

a knowledgeable businessman.    He was the director of a department

that had an annual budget in excess of $1.2 million.      In addition

to this position, petitioner operated a construction consulting

business as a sole proprietorship.       He was a general partner in a

real estate partnership, a shareholder in an S corporation, and

     6
      Petitioner reported a total taxable income of $127,749 on
his returns for the 3-year period, whereas his true taxable
income for those years was determined to be $534,926.19, an
understatement of $407,177.19 for the 3-year period.
                               - 13 -

an owner of several rental properties.    With the exception of the

unreported cash payments from Mr. Hall, petitioner maintained

records for all his endeavors.    During the years in issue,

petitioner issued 39 Forms 1099 to various subcontractors in the

conduct of his consulting business.     Petitioner documented each

and every payment made to these individuals throughout the 3-year

period.    In addition, petitioner supplied his return preparer,

Mr. Pressley, with receipts and documentation for all expenses

stated on his Federal income tax returns.    Petitioner's

recordkeeping included retention of documentation for a $3.26

expense.   Petitioner was obviously aware of his obligation to

maintain adequate records of his income and expenses.    His

failure to maintain any record of the substantial cash payments

received from Mr. Hall was inconsistent with his normal practice.

This pattern of omission was not a good faith or negligent error.

See Kendrick v. Commissioner, T.C. Memo. 1980-270.

     Petitioner testified that he was expecting Mr. Hall to

supply him with Forms 1099 reflecting his income and, thus, did

not maintain records of receipts from Mr. Hall.     But this

explanation cannot account for petitioner's failure to keep

records after 1989, when it was surely apparent that Mr. Hall was

not going to give petitioner timely Forms 1099.     Nevertheless,

petitioner continued his practice of maintaining no records of

income from Mr. Hall.
                               - 14 -

     Petitioner's testimony regarding his compensation

arrangements with Mr. Hall, and his failure to keep track of

amounts due from Mr. Hall, was not credible.     Petitioner

testified that payments varied and that there was no set amount

or percentage that determined what Mr. Hall was to pay him.


     Q.   What was the purpose of Mr. Hall's payments to you, Mr.
          Hill?

     A.   In many areas, we   worked around the property, of which
          I didn't take off   work, et cetera, and propose [sic] to
          help him in order   to help him with his work. And that
          was basically the   extent of it.

     Q.   Okay.   And how much were you paid for this?

     A.   It varied.

     Q.   How about your --

     A.   There was no set amount.

     Q.   -- was it about 25 percent of what Mr. Hall was paid by
          Bay Point?

     A.   I can't say that it was that. I don't know, sir, and I
          don't remember the exact amounts. It was not ever
          requested in the exact amount.

     Q.   How did you ever know that you were getting the right
          amount of payment from Mr. Hall?

     A.   I guess I trusted him.

     Q.   So, you had no set arrangement with Mr. Hall as to how
          much you were to be paid.

     A.   No, sir.   Not on that.   I did not.

     Q.   And so how would it work with Mr. Hall?     At the end of
          the week, how would you get paid?
                              - 15 -

     A.   Normally on -- not on any given time. He would just
          come over and pay me, and say, This is what I owe you.
          And I said, Fine.

     Q.   And you would just say, That's fine.

     A.   That's correct.


     Petitioner's explanation for his failure to report, or even

to estimate, the income received from Mr. Hall on his 1989, 1990,

and 1991 returns was both inconsistent and implausible.   See

Factor v. Commissioner, 281 F.2d 100, 129 (9th Cir. 1960), affg.

T.C. Memo. 1958-94.   Petitioner contends that he did not report

the income he received from Mr. Hall because Mr. Hall failed to

issue Forms 1099 to him for the years in issue and petitioner had

no way of estimating the amount of the payments.7   Petitioner's

testimony explaining why he did not estimate the amount of these

payments on his tax returns is less than clear:


     Q.   Was it possible to determine how much you received,
          based on deposits to bank accounts or other
          documentation?

     A.   Not based on that because there were some expenses
          involved.

     Q.   Explain that to us, if you would.   How were the
          expenses entered into this?

     A.   Well, there was equipment that was purchased, vehicles
          that were purchased, et cetera.

     7
      Citing Harper v. Commissioner, 54 T.C. 1121, 1141 (1970),
petitioner argues that the nonreceipt of a Form 1099 is a
mitigating factor in cases where, as here, the taxpayer reports
all of his other income. However, that case is distinguishable
on its facts and does not support petitioner's argument.
                                - 16 -

     Q.   That was purchased by whom?

     A.   Through Mr. Hall.

     Q.   Was that somehow related to what you were supposed to
          have received as income?

     A.   It would have been part of it.    Yes.   I would have had
          owned part of it.

     Q.   So, is it true that the amount of cash might not
          necessarily reflect the total amount of income you
          received?

     A.   Say that again now?

     Q.   Is it true that the amount of cash you received may not
          necessarily be the amount of income that was reportable
          by Mr. Hall?

     A.   Correct.

     Q.   And you testified, I believe, that you didn't know how
          much that was?

     A.   Right.

     Q.   And the correct numbers are going to depend upon how
          much of these expenses Mr. Hall was going to charge to
          you versus charging to himself?

     A.   Right.



     It appears from petitioner's testimony that he is asserting

that it was impossible for him to estimate the amount of income

received from Mr. Hall because, in addition to the large amounts

of cash that petitioner received directly from Mr. Hall, some

unknown amount was also paid by Mr. Hall on petitioner's behalf

to some undisclosed third party.    This vague testimony is

inconsistent with the statement petitioner made in his signed
                              - 17 -

affidavit.   In that affidavit, petitioner declared that he

received cash payments totaling $399,435.50 from Mr. Hall.    The

affidavit does not mention any payments made "through" Mr. Hall

to some unknown third parties, as petitioner now contends.

Furthermore, the record contains no documentation or other

corroborating evidence regarding these alleged expenses.

     Moreover, petitioner does not explain how these expenses

related to the income he received from Mr. Hall.   Petitioner

testified that the work he performed for Mr. Hall included the

estimation and preparation of bids.8   We find it implausible that

the nature of this work would require petitioner to share

expenses with Mr. Hall or to make capital expenditures for

vehicles and equipment.

     Petitioner contends that he "felt uncomfortable" estimating

his income on his Federal income tax returns because, in his

view, "falsely representing the amount of such income was worse

than making no representation at all."   However, in order to

extend the time to file his Federal income tax returns,

petitioner filed a Form 4868 in each of the years in issue in

     8
      On direct examination regarding the nature of the payments
he received from Mr. Hall, petitioner testified as follows:


     A.   I did estimating type work, helping him prepare his
          things.

     Q.   Helping him prepare what things?

     A.   His bids and prices of what he needed to do.
                               - 18 -

which he was required to estimate his expected tax liability.

Form 4868 provides that the taxpayer can estimate this amount so

long as that estimate is reasonable.

     Petitioner stated on his 1989 Form 4868 that he expected his

total tax liability for 1989 to be $9,404.    After including the

income from Mr. Hall, petitioner's total tax liability was

determined to be $54,935.   Petitioner's estimate of $18,650 on

his 1990 Form 4868 was much closer to his total tax liability for

1990, which was determined to be $25,101.    However, when

petitioner filed his 1990 Federal income tax return, he stated

that his total tax liability for 1990 was only $3,086 and claimed

and received a refund of $15,564.   On his 1991 Form 4868,

petitioner stated that he expected his 1991 total tax liability

to be $16,675, when, in fact, it was determined to be $76,583.83.

Therefore, even though Form 4868 specifically provides that it is

appropriate to make an estimate, in at least 2 of the 3 years in

issue, petitioner obviously failed to include any reasonable

amount of income from Mr. Hall in his estimated total tax

liability.

     Finally, petitioner asserts that he is not liable for the

fraud penalty because he relied on Mr. Pressley's advice in

filing his original Federal income tax returns for 1989, 1990,

and 1991.    Generally, the duty of filing accurate returns cannot

be avoided by placing responsibility on a tax return preparer.

Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987); Bailey
                                - 19 -

v. Commissioner, 21 T.C. 678, 687 (1954).    It is possible for

reasonable reliance on a competent agent to be a sufficient

defense to fraud.     Davis v. Commissioner, 184 F.2d 86, 88 (10th

Cir. 1950), remanding a Memorandum Opinion of this Court.

Generally, such reliance indicates an absence of fraudulent

intent only when the agent has been provided with complete

information and there is no other evidence indicating fraudulent

intent.     Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir.

1962), affg. T.C. Memo. 1959-172.

     There are several problems with petitioner's placing the

blame for his underpayment of taxes with Mr. Pressley.    First,

Mr. Pressley testified that after petitioner informed him of

income from Mr. Hall, he advised petitioner to obtain a Form 1099

from Mr. Hall.    When petitioner told Mr. Pressley that it would

not be possible to obtain the information from Mr. Hall, Mr.

Pressley advised petitioner to estimate the amount of payments

and file an amended return after receiving the correct

information.    Petitioner chose not to follow this advice and

filed his returns showing only the income that he had

documentation for.    Consequently, we do not find that petitioner

relied on Mr. Pressley's advice.    Second, petitioner did not

provide Mr. Pressley with complete information.    In any event,

petitioner failed to tell Mr. Pressley about the amounts

involved.    The unreported payments from Mr. Hall constituted over

three times the amount of taxable income reported on petitioner's
                               - 20 -

original Federal income tax returns.    Accordingly, we find that

Mr. Pressley's preparation of petitioner's returns is not a

sufficient defense to fraud.

     Petitioner contends that it was his intention to file

amended returns as soon as he received Forms 1099 from Mr. Hall.

We find that it is more reasonable to infer from petitioner's

entire course of conduct that his true intention was to conceal

the payments he received from Mr. Hall and to take his chances

that his fraud would not be discovered.   Petitioner was aware of

the exact amount of the payments he received no later than

November 21, 1992, when he signed the affidavit.   However, it was

not until after respondent began an examination of petitioner's

returns for the years in issue in February 1993 that he amended

his returns and paid his taxes.   The fraud was committed, and the

offense completed, when the original return was prepared and

filed.   See United States v. Habig, 390 U.S. 222 (1968); Plunkett

v. Commissioner, 465 F.2d 299, 302-303 (7th Cir. 1972), affg.

T.C. Memo. 1970-274.   "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 then, if an investigation were

made, would simply pay the tax which he owed anyhow and thereby

nullify the fraud penalty."    George M. Still, Inc. v.

Commissioner, 19 T.C. 1072, 1077 (1953), affd. 218 F.2d 639 (2d

Cir. 1955).
                              - 21 -

     We conclude that the record contains clear and convincing

evidence of petitioner's intent to conceal, mislead, or otherwise

prevent the collection of taxes on the unreported income for the

years in issue.   We hold that the understatements of tax

attributable to the unreported income from Mr. Hall were due to

fraud.   Petitioner has not established that any portion of the

underpayment is not due to fraud.   See sec. 6663(b).

Accordingly, we sustain respondent's determination that

petitioner is liable for the fraud penalties.



                                         Decision will be entered

                                    under Rule 155.
