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home until they decided whether they would buy a replacement home
and roll over the gain. They further contend that they had no
taxable income in 1988 after deducting itemized deductions,
losses on the sale of real estate, and a loss carryforward from
1987.
Finally, petitioners maintain that any inaccuracies on the
1989 return occurred because their child was seriously ill and
had heart surgery in April 1990, when the 1989 return was due.
They argue that they are not liable for the accuracy related
penalty for 1989 because loss carryforwards eliminate any tax
liability for 1989.
We disagree. We believe that petitioners' tragic
difficulties with Antonino excuse the lateness of the 1989
return, but not its inaccuracies. Petitioner husband did not
have books and records showing his sales, commissions, etc., or
other information relating to the operation of his businesses.
Petitioners substantially underreported their income and
overreported their deductions for each of the years in issue. We
find that petitioners' underpayments of tax in 1987, 1988, and
1989 were due to negligence because they failed to keep adequate
records. Gilman v. Commissioner, 72 T.C. 730, 751 (1979).
c. Substantial Understatement
The next issue for decision is whether petitioners are
liable for the addition to tax for substantial understatement of
income tax under section 6661(a) for 1987 and 1988. Section
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