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(5) whether petitioners are liable for additions to tax for
negligence under section 6653(a)(1)(A) and (B) for 1986 and 1987
and section 6653(a)(1) for 1988; and
(6) whether petitioners are liable for additions to tax for
substantial understatement of income tax under section 6661 for
1986, 1987, and 1988.
FINDINGS OF FACT
Petitioners Kondamodi S. Rao and B. Satyaveni Rao are
husband and wife. They resided in Mountain Lakes, New Jersey, at
the time the petition in this case was filed. Petitioners timely
filed joint Federal income tax returns for 1986, 1987, and 1988.
Prior to the expiration of time prescribed by section 6501(a) for
the assessment of income tax due for each of the years 1986,
1987, and 1988, petitioners and respondent executed written
agreements pursuant to section 6501(c)(4) extending the period
for the assessment of tax due for the years in issue. Respondent
timely issued a statutory notice of deficiency whereby she
determined that petitioners fraudulently failed to report
Schedule C gross receipts in the amounts of $50,130, $63,890, and
$49,681 for the years 1986, 1987, and 1988, respectively.
Respondent further determined that petitioners were not entitled
to deduct Schedule E rental losses from the operation of the
medical center of $102,548, $25,000, and $25,000, for the years
1986, 1987, and 1988, respectively. Respondent further
determined that petitioners were liable for the addition to tax
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