Jack J. Kramer - Page 48

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            received income from illegal sources in both years.  He sought to                             
            conceal that income and its sources by not filing tax returns and                             
            paying taxes for 1986 and 1987.  Petitioner presented no evidence                             
            that any portion of the income, and thus of the underpayment in                               
            either year, was not due to fraud.  Petitioner is therefore                                   
            liable for additions to tax for fraud on the entire underpayments                             
            for both years.  Sec. 6653(b)(2).                                                             
                  b.  Substantial underpayment of tax--section 6661                                       
                  For 1986 and 1987, section 6661 authorizes an addition to                               
            tax of 25 percent of any underpayment if there has been a                                     
            substantial understatement of income.  Pallottini v.                                          
            Commissioner, 90 T.C. 498 (1988) (the applicable rate for                                     
            assessments made after October 21, 1986, is 25 percent).  The                                 
            Code defines a substantial understatement as one that exceeds 10                              
            percent of the tax required to be shown on the return or $5,000.                              
            Sec. 6661(b)(1)(A); Tweeddale v. Commissioner, 92 T.C. 501, 505                               
            (1989); Woods v. Commissioner, 91 T.C. 88, 95 (1988).  An                                     
            understatement is the difference between the tax required to be                               
            shown on the return and the actual amount shown.  Since                                       
            petitioner failed to file returns for both years, the                                         
            understatement for both years is the entire deficiency.  Estate                               
            of McClanahan v. Commissioner, 95 T.C. 98, 103 (1990) (section                                
            6661 applies both to taxpayers who fail to disclose adequately                                
            their taxable income and tax due on a return and to taxpayers who                             
            fail to file any return at all).  The understatements from both                               




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