                       T.C. Memo. 1996-196



                     UNITED STATES TAX COURT



                   WILLIAM KALE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20516-92.          Filed April 23, 1996.



     David L. Segal and Jeffry H. Homel, for petitioner.

     Keith Gorman and Doug Fendrick, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     PARR, Judge: Respondent determined deficiencies in, and

additions to, petitioner’s Federal income tax as follows:
                             Additions to Tax
                          Sec.       Sec.            Sec.
Year      Deficiency     6653(b)   6653(b)(1)     6653(b)(2)
1980      $48,603        $24,302       -              -
                                                      1
1982        1,114            -       $557
                                                      1
1983        1,092            -        546
1
  50 percent of the interest due on the underpayment attributable
to fraud.
                                - 2 -

     The issues for decision are:   (1) Whether petitioner is

collaterally estopped from denying that he received bribe income

during the years in issue. We hold that he is not.     (2) Whether

petitioner received unreported bribe income during the years in

issue.   We hold that he did. (3) Whether petitioner is liable for

additions to tax for fraud pursuant to section 6653(b).1      We hold

that he is.    (4) Whether respondent is precluded from assessing

tax for the years in issue due to the running of the statute of

limitations.   Due to our holding in issue 3 above, we hold that

she is not.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and attached exhibits are incorporated

herein by this reference.   At the time the petition herein was

filed, petitioner resided in Pompano Beach, Florida.

Petitioner

     Petitioner received a Bachelor of Science degree in

accounting from the Drexel Institute of Technology in 1949.      From

1953 to January of 1981, petitioner was employed as a Revenue

Agent with the Examination Division of the Philadelphia Office of

the Internal Revenue Service (IRS).     As a revenue agent,

petitioner was responsible for conducting examinations of filed



     1
       All section references are to the Internal Revenue Code in
effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
                               - 3 -

Federal income tax returns and preparing Revenue Agent’s Reports

(RAR's), reflecting proposed changes to taxpayers’ examined

returns.

     Examinations determine whether a taxpayer is due a refund,

owes additional taxes, or correctly reported his tax liability.

If no adjustments are made in an examination, a taxpayer receives

a clearance letter indicating that the return was accepted as

filed and the examination is closed. If adjustments are made,

RAR’s are then sent to the taxpayer, who, if in agreement with

the adjustments, signs the RAR.   After signing the RAR, it is

forwarded to an IRS review department, which reviews the RAR and,

upon accepting the RAR’s findings, issues a clearance letter to

the taxpayer, closing the examination.

     From at least 1979, petitioner was assigned to examination

group 1201, elevated to a Grade 13, the most senior revenue agent

position below management, and was responsible for examining the

most complex cases.

Charles Toll

     Sometime in the early 1960's, petitioner examined the tax

returns of Colonial Beef Company.   Needleman & Toll (Needleman)

was the accounting firm that handled Colonial Beef’s tax returns

and tax audits.   Charles Toll (Toll) was an accountant at

Needleman until 1966.   During the years he worked at the firm,

Toll was aware that Needleman was negotiating or paying bribes to

IRS agents in order to receive favorable IRS examination results.
                              - 4 -

While handling the Colonial Beef examination, Toll paid a bribe

to petitioner in order to receive favorable examination results.

Cynwyd

     While at Needleman, Toll was responsible for the Saligman

and Cravitz families’ tax returns and tax audits. These families

held interests in numerous partnerships. Toll was also

responsible for representing those families with respect to the

tax returns and tax audits of these partnerships. The managing

general partners of these partnerships were three partnerships:

Saligman Special, Saligman Capital, and Cynwyd Investments.

Cynwyd Investments was primarily owned by members of the Saligman

and Cravitz families. By 1977, Toll also held an interest in

Cynwyd Investments. Hereinafter, references to the Cynwyd Group,

will refer to the various partnerships and entities owned

directly or indirectly by the Cravitz and Saligman families.

     Toll was aware that the Saligman and Cravitz families,

through Needleman, were paying bribes to various IRS agents in

order to receive favorable audit results.   In 1966, Toll was

hired by the Saligman and Cravitz families to oversee all of the

Cynwyd Group’s accounting, taxes, and finances.   Toll remained at

that position until 1984, when a criminal investigation of the

Cynwyd Group commenced.

Petitioner’s Cynwyd Examinations

     Sometime between October 1978 and April 1979, petitioner was

assigned the examination of the 1977 tax return of the Rita
                                - 5 -

Cooper trust.    Rita Cooper was a member of the Saligman family.

In April 1979, petitioner began his examination of the 1977 Rita

Cooper trust return and the 1977 tax return of the Harvey

Saligman trust.   Petitioner expanded his examination to include

the 1978 tax returns for the two trusts.   Neither the Rita Cooper

Trust, nor the Harvey Saligman Trust, was a partner in the Cynwyd

Investments partnership.   The trusts did hold interests in

various partnerships in which Cynwyd Investments held an

interest, and which were a part of the Cynwyd Group.

     Petitioner notified Toll that he was examining the two trust

returns.   Petitioner and Toll entered into discussions about the

audit.   The outcome of those discussions was that Toll would pay

petitioner $105,000 to (1) extend his examination to include the

1977 and 1978 tax returns of various members of the Cynwyd Group,

including, among others, the returns of Cynwyd Investments,

Saligman Capital, and the individual returns of the Saligman and

Cravitz family members, and (2) make sure that the examinations

resulted in favorable tax treatment by overlooking various tax

adjustments that otherwise would have been required.   Toll agreed

to pay petitioner the $105,000 in periodic installments upon

Toll’s receipt of IRS clearance letters from the IRS review

department.

Suval’s Review

     From the beginning of 1979 through August 1980, Irving Suval

(Suval) was the assistant review chief of the Philadelphia IRS
                                - 6 -

review department.    Suval had been employed by the IRS for over

30 years.    Petitioner was aware that Suval had received bribes in

the past in order to compromise audits.    In early 1980,

petitioner approached Suval, confided to him that he, petitioner,

was going to receive bribe payments from Toll for favorably

auditing the 1977 and 1978 Cynwyd Group returns, and offered

Suval $6,500 to expedite the processing through the review

department of certain of the Cynwyd Group returns which

petitioner examined.

Payment of $105,000

     Toll paid petitioner the $105,000 bribe in five installments

beginning in August 1980 and ending November 1980.

Toll’s Bribe to Suval

     Sometime in 1980, before the Cynwyd Group’s 1977 and 1978

returns were cleared, Toll requested petitioner to extend his

examination to include the Cynwyd Group’s 1979 and 1980 tax

returns.    An Examination Division policy precluded petitioner

from examining the 1979 and 1980 returns.    Petitioner, however,

was able to ensure that the returns would be examined by group

1201, petitioner’s examination group.    In September 1980, Suval

became group 1201's examination manager.    Petitioner informed

Suval that he arranged for the Cynwyd Group’s 1979 and 1980

returns to be examined by group 1201 and that Toll would pay

Suval $65,000 to compromise the audit.    Suval and petitioner

agreed that Suval would pay petitioner $7,500 for setting up the

$65,000 bribe.
                                - 7 -

     In January 1981, petitioner retired from the IRS.    Prior to

retiring, petitioner assured Toll that Suval would compromise the

1979 and 1980 audit.   Suval and Toll met in June 1981 to confirm

the $65,000 bribe.   Subsequently, Suval requested, and Toll

agreed to pay, an additional $50,000, for a total of $115,000, to

ensure the favorable audit.    Petitioner was unaware of the

additional $50,000 bribe.

Payment of the $65,000 Bribe

     Toll paid Suval the $115,000 in installments beginning in

the Autumn of 1981, and ending in 1983. Suval paid petitioner the

agreed upon $7,500 in installments as Suval received his payments

from Toll.

Criminal Investigation

     In early 1984, IRS inspectors confronted Suval with their

knowledge of Suval’s having receiving bribes.    Suval agreed to

cooperate with the U.S. Government by wearing a “body wire” in

conversations Suval had with petitioner in April 1984. Suval was

subsequently indicted for, and pleaded guilty to, bribery and

conspiracy to commit bribery, among other offenses.

     Concurrently, a criminal investigation of the Cynwyd Group’s

operations commenced in connection with their bribing IRS

officials.   Toll was subsequently indicted for, and pleaded

guilty to, bribery and conspiracy to commit bribery, among other

offenses.

     On February 4, 1986, petitioner was indicted by the Federal

Grand Jury for and in the U.S. District Court for the Eastern
                               - 8 -

District of Pennsylvania for one count of conspiracy to defraud

the United States under 18 U.S.C. sec. 371 (1994) and one count

of aiding and abetting the bribery of a public official under 18

U.S.C. sec. 201(b) (1994).

     In count one of the indictment the grand jury charged

petitioner of conspiring with Toll and Suval to defraud the

United States.   The object of the conspiracy was for petitioner

and Suval to receive bribes from Toll in return for conducting

inadequate examinations of the Cynwyd Group’s tax returns.    Among

the 55 overt acts contained in count one of the indictment were

the following: (1) Petitioner's meeting with Toll at various

times to discuss examination of specific Cynwyd Group returns;

(2) petitioner’s causing the IRS to issue certain clearance

letters; (3) Toll's meeting with Suval at various times to

discuss the examination of various Cynwyd Group returns; (4)

Suval’s causing the IRS to issue certain clearance letters; (5)

Toll's making payments to Suval.

     In its instructions to the jury at petitioner’s criminal

trial concerning the count of conspiracy, the court stated as

follows:

          In order to meet the burden of proof as to
     * * *[the Count of conspiracy] against * * *
     [petitioner], there are five things that the
     Government must prove beyond a reasonable doubt:

          First, that the conspiracy described in the Bill
     of Indictment was formed and was existing at or about
     the times that are alleged;
          Secondly, that * * * [petitioner] intentionally,
     willfully, became a member of that conspiracy;
                              - 9 -

          That thereafter one of the conspirators committed
     at least one - not all, but at least one - of the overt
     acts charged in the indictment at or about the time and
     place alleged;

          Fourth, that such overt act was done in
     furtherance of some object or purpose of the
     conspiracy; and

          Fifth, that one of the conspirators did something
     on or after February 4, 1981, to further some aspect
     of the conspiracy, that is, to accomplish one or more
     of its purposes. [Emphasis added.]

     Petitioner was subsequently convicted on both the count of

conspiracy and the count to aid and abet.

Deficiency notice

     Based on facts adduced at petitioner’s criminal trial,

respondent determined the deficiencies set out above.    In the

deficiency notice, respondent made adjustments increasing

petitioner's gross income by $3,750 for each of the 1982 and 1983

taxable years based on Suval’s testimony at the criminal trial.

Suval testified that he paid petitioner $7,500 over a 2-year

period ending in 1983, but because he did not say exactly when

the $7,500 was paid, respondent apportioned the $7,500 equally

between 1982 and 1983.

                             OPINION

I. Deficiency

     A taxpayer is required to maintain records sufficient to

establish their tax liabilities.   Sec. 6001.   If the taxpayer

fails to maintain such records or the records maintained are

inadequate, then respondent is authorized to reconstruct income
                                - 10 -

by any reasonable method, which in her opinion clearly refects

the taxpayer’s income.     Petzoldt v. Commissioner, 92 T.C. 661,

693-694 (1989); Harbin v. Commissioner, 40 T.C. 373, 377 (1963).

Based on facts adduced at petitioner’s criminal trial, respondent

determined that petitioner received unreported bribe income for

the years in issue.   It is clear that bribes received are

includable in gross income.     Sec. 61(a); sec. 1.61-14(a), Income

Tax Regs.   It is also well settled that, except where otherwise

provided in the Internal Revenue Code or Tax Court Rules of

Practice and Procedure, the burden of proof rests with

petitioner.   See Rule 142(a); Welch v. Helvering, 290 U.S. 111

(1933).   Thus, petitioner bears the burden of proving that he did

not receive the bribes in question during the years in issue and

that respondent’s determinations are incorrect.

     A.   Collateral Estoppel

     Respondent first argues that petitioner, by his conviction

in Federal District Court on the count of conspiracy to bribe, is

collaterally estopped from denying that he received the bribes in

question.   We disagree.

     The Court has recognized that a criminal conviction can

operate as collateral estoppel in a subsequent civil case. Arctic

Ice Cream Co. v. Commissioner, 43 T.C. 68 (1964).     However, the

judgment in the prior action will act as an estoppel only as to

those issues or elements, upon the determination of which the
                               - 11 -

verdict of guilty was necessarily rendered.      Commissioner v.

Sunnen, 333 U.S. 591 (1948).

     In petitioner’s criminal trial, the judge instructed the

jury that in order to find petitioner guilty of conspiracy, the

jury had to find, among other things:

     Secondly, that * * * [petitioner] intentionally,
     willfully, became a member of that conspiracy;

          That thereafter one of the conspirators committed
     at least one - not all, but at least one - of the overt
     acts charged in the indictment at or about the time and
     place alleged;

          Fourth, that such overt act was done in
     furtherance of some object or purpose of the
     conspiracy; and

          Fifth, that one of the conspirators did something
     on or after February 4, 1981, to further some aspect of
     the conspiracy, that is, to accomplish one or more of
     its purposes. [Emphasis added.]


There are 55 overt acts found in the bill of indictment relating

to the count of conspiracy.    The large majority of those acts are

not bribery payments to petitioner.      Some of the acts are bribe

payments from Toll to Suval which occurred after February 4,

1981.   Some of the acts are meetings between Toll and Suval which

occurred after February 4, 1981.   In order to reach the verdict,

the jury was only required to find that one of the conspirators--

Toll, Suval, or petitioner--performed one of these 55 overt acts,

and that one of the conspirators did something to further the

conspiracy after February 4, 1981.      The jury was not, however,

required to find that petitioner actually received bribe payments
                               - 12 -

in the amounts which respondent has included in his gross income.

Accordingly, petitioner is not estopped from denying that he did

not receive such bribe payments.

   B. Petitioner’s Burden of Proof

     We have taken petitioner’s proposed findings of fact into

account even though we were not required to as petitioner

violated Rule 151(e)(3), which prescribes how litigants are to

treat proposed findings of fact.2    See Van Eck v. Commissioner,

T.C. Memo. 1995-570.    Petitioner failed to include separate,

numbered, statements of fact, or to object to respondent’s

proposed findings in his reply.     Petitioner appeared to concede

in his statement of “facts adduced at trial” that petitioner

received a $105,000 bribe from Toll.

     Petitioner has failed to prove respondent’s determinations

to be incorrect.    Petitioner does not attempt to meet his burden


     2
         Rule 151(e)(3) states that briefs shall contain:

     Proposed findings of fact (in the opening brief or
     briefs), based on the evidence, in the form of numbered
     statements, each of which shall be complete and shall
     consist of a concise statement of essential fact and
     not a recital of testimony nor a discussion or argument
     relating to the evidence or the law. In each such
     numbered statement, there shall be inserted references
     to the pages of the transcript or the exhibits or other
     sources relied upon to support the statement. In an
     answering or reply brief, the party shall set forth any
     objections, together with the reasons therefor, to any
     proposed findings of any other party, showing the
     numbers of the statements to which the objections are
     directed; in addition, the party may set forth
     alternative proposed findings of fact.
                               - 13 -

of proving that he did not receive unreported bribe income during

the years in issue, but rather spends the bulk of his time

arguing that respondent did not meet her burden of proving fraud.

Petitioner states in his brief:

          Respondent enjoys no presumption of correctness in
     her assessment. Instead, * * * [petitioner] is
     presumed not to have received * * * [the bribes] unless
     Respondent affirmatively establishes (1) that * * *
     [petitioner] took the bribes and, if so, (2) how much
     he received * * *.

Petitioner’s understanding of who bears the burden of proof is

skewed.   Despite respondent’s burden of proving fraud, Rule

142(b), petitioner still bears the burden of proof regarding the

deficiency.   Rule 142(a); Welch v. Helvering, supra.3   Viewing

the procedural posture of this case in an incorrect light,

petitioner offers little evidence other than his own testimony,

which is insufficient to overcome respondent's determination of

income tax deficiencies.   Petitioner’s testimony was at complete

odds with the hard evidence.   For example, petitioner claims that

his trail of investigation led him to the tax returns of Cynwyd

Investment and Saligman Capital, which opened the door for

investigation of the Cynwyd Group’s returns.   However, a review

of petitioner’s work chronology finds that result impossible.

Petitioner first examined the 1977 and 1978 returns of the Rita

Cooper Trust and the Harvey Saligman Trust.    He found a problem


     3
       In regard to the burden of proof in fraud cases, see
Franklin v. Commissioner, T.C. Memo. 1993-184.
                                - 14 -

concerning a certain credit, which was passed through to the

trusts from a partnership called Traylor Syndicate (Traylor).       It

was this credit, according to petitioner, which paved the trail

to the Cynwyd Group.     We do not see how.   Logically, the next tax

returns that petitioner should have examined were those of

Traylor, through which the credits passed to the trusts.

However, the next returns which petitioner did, in fact, examine

were those of Cynwyd Investments and Saligman Capital.      Yet, the

trusts were not partners in either of those partnerships.      We

find no basis for petitioner’s extension of his investigation to

include the Cynwyd Group, other than that he was paid by Toll to

do so.     Accordingly, we disregard petitioner’s testimony.

Petitioner offers little other evidence to aid him in meeting his

burden of proof.

      We find, therefore, that petitioner has failed to carry his

burden of proving that he did not receive unreported bribe income

of $105,000 in 1980 and $7,500 during 1982 and 1983.

Additionally, petitioner has not shown that respondent’s method

of allocating the $7,500 equally between 1982 and 1983 is

unreasonable.     Harbin v. Commissioner, 40 T.C. at 377.

Accordingly, we sustain respondent’s deficiency determinations.

II. Additions to Tax for Fraud

         Respondent determined that petitioner is liable for

additions to tax for fraud under section 6653(b) for 1980, and

section 6653(b)(1) and (2) for 1982 and 1983.
                                - 15 -

   A. Section 6653(b) and Section 6653(b)(1)

     For 1980, section 6653(b), and for 1982 and 1983, section

6653(b)(1) provide for an addition to tax in an amount equal to

50 percent of any underpayment in tax if any part of such

underpayment is due to fraud.

     The existence of fraud is a question of fact to be

determined on the basis of the entire record.    Gajewski v.

Commissioner, 67 T.C. 181, 199 (1976), affd. without published

opinion 578 F.2d 1383 (8th Cir. 1978).   The principal issue in

ascertaining whether fraud is present is whether the taxpayer has

engaged in conduct with the specific intent to evade a tax known

or believed to be properly owing.    Rowlee v. Commissioner, 80

T.C. 1111, 1123 (1983).

     For purposes of the section 6653(b) and section 6653(b)(1)

additions, the Commissioner bears the burden of proving, by clear

and convincing evidence, (1) that some underpayment of tax

existed for each of the years in issue and, (2) that some part of

the underpayment of tax was attributable to the taxpayer’s fraud.

Sec. 7454(a); Rule 142(b); Parks v. Commissioner, 94 T.C. 654,

660-661 (1990); Imburgia v. Commissioner, 22 T.C. 1002, 1014

(1954).   Where fraud is determined for more than 1 year, the

Commissioner's burden applies separately to each year.    Barbuto

v. Commissioner, T.C. Memo. 1991-342 (citing Estate of Stein v.

Commissioner, 25 T.C. 940, 959-963 (1956), affd. sub nom. Levine

v. Commissioner, 250 F.2d 798 (2d Cir. 1958)).
                                - 16 -

     1. Underpayment

     The first element requires the Commissioner to establish the

existence of some underpayment of tax for each of the years in

issue.   Section 6653(c) defines underpayment as having in general

the same meaning as "deficiency;" i.e., to mean the amount by

which the tax imposed exceeds the amount of tax shown by the

taxpayer on his return.   Sec. 6211.     To prove an underpayment,

the Commissioner cannot satisfy her burden by relying solely on

the taxpayer's failure to prove error in the determination of the

deficiencies. Otsuki v. Commissioner, 53 T.C. 96, 106 (1969).

     Respondent’s case rests heavily on the testimony of Toll and

Suval during the trial in this proceeding.      As petitioner states

in his brief:

     Mr. Toll claims to have paid * * * [petitioner] a
     $105,000 bribe to subvert the 1977 and 1978 audits; Mr.
     Suval says he paid * * * [petitioner] $7,500 for having
     introduced him to Mr. Toll. * * * If * * * [Toll and
     Suval’s] believed testimony is clear and convincing,
     then * * * [petitioner] owes taxes for the years at bar
     * * *.

We have found the testimony of Toll, in particular, and Suval to

be trustworthy and convincing.    We acknowledge that Toll and

Suval pleaded guilty to various crimes in relation to the bribes.

We do not find that either of them had a motive that would prompt

false testimony in this case.    We acknowledge that, at times,

Toll’s testimony was not in complete accord with Suval's.

However, the events of this case occurred over a decade ago.      We
                              - 17 -

find the few contradictions in testimony to be understandable and

of little importance.

     Furthermore, other evidence, including Toll’s records of the

bribes he paid petitioner supports their testimony.   We have also

found the transcript of the “wired” conversation between Suval

and petitioner, though not explicit, to be very damaging to

petitioner.

     We wish to note, however, that the expert report and opinion

of John Lackey add little weight to respondent’s case.   First,

Mr. Lackey did not review all the returns which petitioner

examined.   Additionally, the mistakes that Mr. Lackey found in

petitioner’s 1977 and 1978 tax return examinations could have

been unintentional, possibly resulting from petitioner’s

completing them in a hurry, or from the fact that petitioner did

not have the extensive examination resources that Mr. Lackey had.

This conclusion could be supported by the fact that Mr. Lackey

found similar mistakes in the 1979 and 1980 Cynwyd Group returns

which he examined, even though petitioner did not examine those

returns.

     Nonetheless, even though we give little weight to Mr.

Lackey’s report, we find that respondent has proven, by clear and

convincing evidence, that petitioner received unreported bribe

income in 1980, 1982 and 1983.   Accordingly, respondent has met

her burden of proving that underpayments existed for the years in

issue.
                                - 18 -

     2. Fraudulent Intent

     The second element requires the Commissioner to prove

fraudulent intent on the part of the taxpayer.       Fraud will never

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

Respondent may prove fraud through circumstantial evidence, as

direct proof of the taxpayer's intent is rarely available.       The

taxpayer's entire course of conduct may establish the requisite

fraudulent intent.    Stone v. Commissioner, 56 T.C. 213, 223-224

(1971); Otsuki v. Commissioner, supra at 105-106.

     Courts have developed various factors or "badges" that tend

to establish fraud.    Recklitis v. Commissioner, 91 T.C. 874, 910

(1988).   These include: (1) A pattern of understatement of

income; (2) inadequate records; (3) concealment of assets; (4)

income from illegal activities; (5) attempting to conceal illegal

activities; (6) implausible or inconsistent explanations of

behavior; and (7) dealing in cash.       Id.   Repeated understatements

in successive years, when coupled with other circumstances

showing an intent to conceal or misstate taxable income, present

a basis on which we may properly infer fraud.        Patton v.

Commissioner, 799 F.2d 166, 171 (5th Cir. 1986), affg. T.C. Memo.

1985-148.

     We believe petitioner’s underpayments to have been due to

fraud.    Petitioner was convicted for being a part of a conspiracy

to defraud the United States.    He received bribes during the

years in issue.   Petitioner was employed as a revenue agent at
                              - 19 -

the IRS for nearly 30 years, reaching the highest possible grade

allowed to nonmanagement agents, and was fully aware that those

bribes are includable in income and should have been reported on

his Federal tax returns.   Petitioner did not report those bribes.

He did not maintain any records of the bribes.     All in all, we

find that petitioner’s entire course of conduct reveals that he

willfully intended to prevent the collection of tax he knew was

owing on the illegal bribe income.     We therefore find that the

full amount of the underpayment for each year is attributable to

petitioner's fraud.   Accordingly, we sustain respondent's

determination of additions to tax under sections 6653(b) and

section 6653(b)(1).

   B. Section 6653(b)(2)

     Under section 6653(b)(2), an addition to tax equal to 50

percent of the interest payable under section 6601 is imposed on

the portion of the underpayment attributable to fraud.

Respondent bears the burden of proving by clear and convincing

evidence the specific portion of the underpayment due to fraud in

each year.   DiLeo v. Commissioner, 96 T.C. 858, 873 (1991), affd.

959 F.2d 16 (2d Cir. 1992).   Accordingly, to adjudicate an

addition to tax under section 6653(b)(2), first we must examine

the evidence and satisfy ourselves as to the amount that clearly

and convincingly is an underpayment.     Then, we must determine

whether any or all of such amount clearly and convincingly is due
                              - 20 -

to fraud.   Only to that extent can respondent prevail in her

determination of an addition to tax under section 6653(b)(2).

     Based, in part, on the testimony of Toll and Suval and

records kept by Toll, we are convinced that petitioner received

an unreported $105,000 bribe in 1980, and thus an underpayment

attributable to fraud resulting from that amount exists for that

year.   The $7,500 bribe, however, poses a problem.   We have

sustained respondent’s adjustment in regard to the $7,500.      We

did so because petitioner failed to meet his burden of proving

that he did not receive that amount over 1982 and 1983 and that

respondent’s method of allocation was unreasonable.    We have

found, based on respondent’s evidence, which we regard as clear

and convincing, that petitioner did indeed receive from Suval

unreported bribe payments totaling $7,500.   However, respondent

has not adequately proven when petitioner received those

payments.   Suval testified that he received bribe payments from

Toll over a course of 2 years, beginning at the end of 1981, and

that he paid petitioner the $7,500 in installments, upon

receiving his own payments from Toll.   Suval did not testify,

however, that he paid the entire $7,500 to petitioner in 1982 and

1983.   Notwithstanding that fact, we can approximate petitioner’s

receipts, bearing heavily on respondent who bears the burden of

proof on this issue.   Sec. 6653(b)(2); Rule 142(b); see Cohan v.

Commissioner, 39 F.2d 540 (2d Cir. 1930). Exhibit 16-P includes a

record of Toll’s $65,000 bribe payments to Suval (not included
                               - 21 -

was the subsequent $50,000 bribe promised to Suval of which

petitioner was unaware).    Of that $65,000, 8 percent, or $5,000,

was paid in 1981; 46 percent, or $30,000, was paid in each of the

years 1982 and 1983.   Based on that evidence, we find that of the

$7,500 that petitioner received from Suval, 8 percent, or $600,

was paid to petitioner in 1981, and 46 percent, or $3,450 was

paid to petitioner in each of the years 1982 and 1983.

Accordingly, we find petitioner to have had unreported income of

$3,450 in each of the years 1982 and 1983.      See Cohan v.

Commissioner, supra.

     We have already determined that the entire amount of each

such underpayment is due to fraud.      Therefore, the "portion of

the underpayment * * * attributable to fraud" is the portion

of the underpayment resulting from unreported income of $3,450 in

both 1982 and 1983.    Accordingly, the addition to tax under

section 6653(b)(2), for each of the years 1982 and 1983, is equal

to 50 percent of the interest payable under section 6601 with

respect to the underpayment resulting from unreported income of

$3,450.

III. Statute of Limitations

     Section 6501(c)(1) provides for the assessment of tax at any

time in the case of a fraudulent return.      We have found that

respondent has proven fraud on the part of petitioner for each of

the years in issue and, accordingly, the period for assessment
                               - 22 -

remains open for petitioner.   Vannaman v. Commissioner, 54 T.C.

1011, 1016-1018 (1970).



                                    Decision will be entered

                               under Rule 155.
