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reiterate the matters set forth above in our discussion regarding
the burden of proof.
However, we do partially accept petitioners' contention that
respondent overstated their expenditures for 1989 and 1990.
Based principally on the testimony of Mrs. Chandler, who
impressed us as a credible witness, we have found as a fact that
expenses paid by petitioners by cash and check during 1989 and
1990 did not exceed $37,215 and $19,416, respectively.4 See
Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).
Addition to Tax Under Section 6651(a)(1)
We turn now to the addition to tax for failure to timely
file.
In the case of a failure to file an income tax return within
the time prescribed by law, section 6651(a)(1) provides for an
addition to tax in the amount of 5 percent of the tax required to
be shown on the return for each month (or part thereof) during
which such failure continues, but not to exceed 25 percent in the
aggregate. See sec. 301.6651-1(a)(1), Proced & Admin. Regs. The
taxpayer is not liable for the addition to tax if the failure to
timely file is due to reasonable cause and not due to willful
4 Respondent determined that expenses paid by petitioners by
cash and check during 1989 and 1990 amounted to $43,215 and
$28,416, respectively. Consequently, as a result of our finding,
the understatement of petitioners' income for 1989 will be
reduced from $11,149 to $5,149, and the understatement in
petitioners' income for 1990 will be reduced from $15,236 to
$6,236.
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