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underpayment. The penalty applies, inter alia, to “Any
substantial understatement of income tax.” Sec. 6662(b)(2).
Section 6662(d)(1)(A) provides that there is a substantial
understatement of income tax if the amount of the understatement
exceeds the greater of “(i) 10 percent of the tax required to be
shown on the return for the taxable year, or (ii) $5,000.” The
understatement here is the full amount of the deficiency or
$7,2222 and exceeds $5,000. Accordingly, petitioners are liable
for the penalty under section 6662.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.
2 See sec. 6662(d)(2). Petitioners reported that no tax was
due on their return. The amount of tax required to be shown on
the return was $7,222, the amount of the deficiency. There were
no rebates.
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Last modified: May 25, 2011