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Respondent determined that, for tax years 1990 and 1991,
petitioners were liable for the section 6662(a) penalty with
respect to the claimed business bad debt deductions. For tax
year 1992, the penalty relates only to unreported taxable Social
Security income in the amount of $9,409. With respect to the
claimed bad debt deductions for 1990 and 1991, since facts and
circumstances determine whether an indebtedness is business or
nonbusiness, the Court finds that petitioner, in good faith,
believed that the debts were appropriately characterized as
business bad debts and that the debts became worthless in 1989.
The Court holds, on this record, that petitioners did not claim
the bad debt deductions in a negligent manner. Accordingly, with
respect to the section 6662(a) penalties for 1990 and 1991,
petitioners are sustained.
With respect to the negligence penalty related to the
unreported Social Security income for 1992, the Court holds for
petitioners. As evidenced by their calculation on the worksheet
accompanying their income tax materials, as to the amount of
taxable Social Security benefits for 1992, petitioners concluded
that the $21,517 in Social Security benefits received by them
during 1992 was nontaxable. Upon concluding that none of the
Social Security benefits received in 1992 was taxable,
petitioners reported, on line 21b of their 1992 return "0.00" as
the taxable amount of the Social Security benefits. Petitioners
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