- 12 -
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
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011