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Petitioner has no tax or accounting background. She used a
competent contractor to contemporaneously estimate the amount of
damage to her home. She was reasonably careful in preparing her
loss estimate, and she reasonably relied on her accountant to
prepare her return. She gave her accountant all necessary
information to prepare her return. She attached to Form 4684,
Casualties and Thefts, a detailed inventory of her personal
property loss and the $202,200 reduction in the value of her real
property by the San Mateo County tax assessor's office. She
hired a personal property appraiser to verify her estimates of
her personal property loss. Petitioner made a reasonable attempt
to figure the amount of her casualty loss. We hold that she was
not negligent.
2. Substantial Understatement
The next issue for decision is whether petitioner is liable
for the addition to tax for substantial understatement of income
tax under section 6661(a) for tax years 1985-87. Section 6661(a)
provides for an addition to tax in the amount of 25 percent of
the amount of any underpayment attributable to a substantial
understatement of income tax.
An understatement is the amount by which the correct tax
exceeds the tax reported on the return. Sec. 6661(b)(2)(A). An
understatement is substantial if it exceeds the greater of 10
percent of the tax required to be shown on the return or $5,000.
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