Stanley and Jean Cohen - Page 12

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          waive the addition to tax, in whole or in part, upon a showing              
          that the taxpayer had reasonable cause for the corresponding                
          portion of the understatement and acted in good faith.  Sec.                
          6661(c).  It is undisputed that petitioners substantially                   
          understated their tax liability for 1985, 1987, and 1988.                   
               Petitioners advance two arguments to contest their liability           
          under section 6661.  First, they argue that the substantial                 
          understatements should be reduced to the extent that they are               
          attributable to the securities trading losses deducted on                   
          Schedule C, because petitioners disclosed sufficient relevant               
          facts to enable respondent to identify the potential controversy.           
          We disagree.  Petitioners did not follow the procedures for                 
          making adequate disclosure on Form 8275 or on a statement                   
          attached to the return as provided for in the regulations.  See             
          sec. 1.6661-4(b), Income Tax Regs.  The returns themselves                  
          contained no reference to section 6661 or other acknowledgment              
          that petitioners were taking a potentially controversial                    
          position.  They did not explicitly identify petitioners' position           
          with respect to the losses.  Nor could respondent reasonably be             
          expected to infer that the characterization of losses was at                
          issue, where the losses were identified only as "cost of goods              
          sold".  The Forms 1040 reflected that petitioner's occupation was           
          "trader" and the Schedules C for 1985 and 1988 reflected that his           
          principal business was "trading".  When used properly in their              





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