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petitioners, petitioners failed to produce adequate records from
which to sustain their deductions. Therefore, to the extent that
the amount petitioners claimed for legal fee deductions was
excessive and to the extent petitioners conceded some items, we
find that they were negligent.
Late Filing
Respondent determined that petitioners are liable for an
addition to tax for filing their 1988 return past its due date.
The addition to tax applies unless it is shown that the failure
to timely file is due to reasonable cause and not due to willful
neglect. Sec. 6651(a)(1). Because petitioners have not shown
that they had reasonable cause or that their failure to timely
file was not due to willful neglect, we find that they are liable
for the addition to tax for failing to timely file their 1988 tax
return.
Substantial Understatement
Respondent determined that petitioners are liable for
additions to tax for substantially understating their income tax.
Income tax is substantially understated if, in any year, the
amount of the understatement exceeds the greater of 10 percent of
the tax required to be shown on the return or $5,000. Secs. 6661
and 6662.
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