- 29 -
did not accurately reflect the personal nature of the
expenditures. Moreover, petitioners failed to demonstrate what
advice they relied on. Finally, petitioners did not establish
that they reviewed the returns in issue to make sure that all
income items were included. Accordingly, we sustain respondent's
determination and find that petitioners are liable for the
accuracy-related penalties under section 6662(a) in 1989, 1990,
and 1991.
Respondent also determined that petitioners are liable for
the 40-percent penalty for gross valuation misstatements provided
under section 6662(h) with respect to the adjusted basis of the
muscle car collection stated on petitioners' 1989 return.12
There is a "gross valuation misstatement" if the value or
adjusted basis on any property claimed on a return is 400 percent
or more of the correct amount. Sec. 6662(e), (h); sec. 1.6662-
5(e)(2), Income Tax Regs. Section 1.6662-5(g), Income Tax Regs.,
provides that "The value or adjusted basis claimed on a return of
any property with a correct value or adjusted basis of zero is
considered to be 400 percent or more of the correct amount." On
their 1989 Federal income tax return, petitioners claimed a basis
of $800,000 on the muscle cars sold in 1989. We find that
12Sec. 6662(h) provides in part:
To the extent that a portion of the underpayment to
which this section applies is attributable to one or
more gross valuation misstatements, subsection (a)
shall be applied with respect to such portion by
substituting "40 percent" for "20 percent".
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