Contents

§ 10.14 PENALTIESrespect to any portion of the underpayment that the taxpayer can prove, by apreponderance of the evidence, is not attributable to fraud. 237These penalties often hinge on the existence of an underpayment. This term isdefined as the amount by which the tax imposed exceeds the excess of the sum of• The amount shown as the tax by the taxpayer on his, her, or its tax return,plus• Amounts not so shown, which were previously assessed (or collectedwithout assessment), over• The amount of rebates 238 made. 239A penalty cannot be imposed with respect to any portion of an underpayment,however, if it is shown that there was a reasonable cause for the portion and thetaxpayer acted in good faith. 240In this regard, there is a special rule for charitable deduction property, which isan item of property contributed by a person in a contribution for which anincome tax charitable contribution deduction was claimed. 241 This rule is: In thecase of an underpayment of tax attributable to a substantial overstatement or agross valuation overstatement with respect to charitable deduction property, thereasonable cause exception is not applicable unless (1) the claimed value of theproperty was based on a qualified appraisal 242 made by a qualified appraiser 243and (2) the contributor made a good faith investigation of the value of the contributedproperty. 244237 IRC § 6663(b). Under prior statutory law, it was held that an underpayment of federal income tax is due tofraud if it results from a taxpayer’s specific intent to evade a tax that the taxpayer believes he or she owes.Bradford v. Commissioner, 796 F.2d 303 (9th Cir. 1986), aff’g 49 T.C.M. (CCH) 105 (1984). Thus, to provethat an underpayment of tax is due to fraud, the IRS must show that the taxpayer intended to evade a tax knownto be due by engaging in conduct designed to conceal, mislead, or otherwise prevent collection of the tax bythe IRS. Patton v. Commissioner, 799 F.2d 166 (5th Cir. 1986), aff’g 49 T.C.M. (CCH) 1068 (1985); Recklitisv. Commissioner, 91 T.C. 874 (1988).The existence of fraudulent intent is a factual question to be decided on the basis of the examination of theentire record. Recklitis v. Commissioner, 91 T.C., at 909; Grosshandler v. Commissioner, 75 T.C. 1 (1980). Itmay never be presumed but must be established by affirmative evidence. Beaver v. Commissioner, 55 T.C. 85(1970). Because direct proof of a taxpayer’s intent is rarely available, however, fraud may be established bycircumstantial evidence. Grosshandler v. Commissioner, 75 T.C. at 19; Gajewski v. Commissioner, 67 T.C.181 (1976), aff’d, 578 F.2d 1383 (8th Cir. 1978).In the charitable giving context, courts will, in determining the existence of tax fraud, take into account thestate of the law at the time, whether this law was “well established,” the level of intelligence and professionaltraining of the donor, the extent of relevant information readily accessible to the donor, and whether the donorconsulted a lawyer or accountant on the point. See, e.g., Braswell v. Commissioner, 66 T.C.M. (CCH) 627(1993); Mobley v. Commissioner, 65 T.C.M. (CCH) 1939 (1993). In one instance, a federal district court lookedto state law to find fraud when a married couple joined the tax protest movement, created a personal church,conveyed their personal residence to the church, and stopped paying federal income taxes on the ground thatone of the spouses was an ordained minister. The court found the conveyance to be intentionally fraudulent (andordered the property sold to pay the taxes due). United States v. Freeman, 93-1 U.S.T.C. 50,296 (D.N.J. 1993).238 See note 228. See also IRC § 6664(a), last sentence.239 IRC § 6664(a).240 IRC § 6664(c)(1).241 IRC § 6664(c)(3)(A). This term does not, however, include any securities for which market quotations arereadily available on an established securities market as of the date of the contribution. Id.242 See § 21.2, text accompanied by notes 84–90. See also IRC § 6664(c)(3)C).243 See § 21.2, text accompanied by notes 101–109. See also IRC § 6664(c)(3)(B).244 IRC § 6664(c)(2). 389