In Norris v. Commissioner, T.C. Memo. 2011-161, the Tax Court found that the service was only able to prove four badges of fraud in regard to William and Sharon Norris's failure to pay taxes on the income from illegal gambling machines in their convenience store in 1996.
William pleaded guilty to tax evasion for 1998, and IRS issued a notice of deficiency claiming the pair failed to report income for 1996 and 1998. While the Tax Court found the couple was collaterally estopped from claiming they intended to evade taxes for 1998, it said the service failed to prove they intended to evade the 1996 taxes, as well.
Read more at: Tax Times blog