- 14 -
their 1988 return, petitioners claimed a net operating loss
carryover from 1987 of $640,600, almost as much as was originally
claimed on the amended 1985 return. The claimed carryover was
overstated by about $316,400.
We hold that petitioners were negligent and intentionally
disregarded rules or regulations in claiming the "embezzlement
loss", and that they are liable for the addition to tax under
section 6653(a)(1) for 1988.
Issue 3. Substantial Understatement
Section 6661, applicable to 1988, imposes an addition to tax
of 25 percent of the amount of any underpayment that results from
a substantial understatement of tax. An understatement is
substantial if it exceeds the greater of 10 percent of the tax
required to be shown or $5,000. Sec. 6661(b)(1)(A).
Petitioners reported a tax liability of $5,859 for 1988. They
had about $240,000 in income that year, and their correct tax
liability would have been much larger than reported. We hold that
petitioners have failed to carry their burden of showing that they
are not liable for the addition to tax under section 6661 for 1988.
Issue 4. Accuracy-Related Penalty
Section 6662(a), applicable to 1989, imposes a penalty of 20
percent of the underpayment attributable to negligence or
substantial understatement of tax. Sec. 6662(a), (b)(1) and (2).
As previously found, petitioners were negligent and substantially
understated their tax for 1988 by claiming a carryover with respect
to the alleged theft loss in 1985. They also were negligent and
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011