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6211(b)(2)), then there is an understatement of tax. This
understatement is "substantial" if the excess amount exceeds the
greater of $5,000 or 10 percent of the amount of tax required to
be shown on the return. Sec. 6662(d)(1). However, section
6662(d)(2)(B) provides that the understatement is reduced to the
extent that (1) the tax treatment of an item shown on the return
was supported by substantial authority or (2) the facts affecting
the item's tax treatment are adequately disclosed and there is a
reasonable basis for such treatment.
Petitioners' 1990 Federal income tax return reported a tax
liability of $392. Based upon concessions made by petitioners in
the stipulations of facts, without accounting for the contested
adjustments, there appears to exist an understatement of tax,
which exceeds the greater of $5,000 or 10 percent of the amount
of tax required to be shown on the return.
Section 6662(a) imposes a penalty equal to 20 percent of the
portion of the underpayment due to negligence or disregard of
rules or regulations. The term "negligence" includes any failure
to make a reasonable attempt to comply with the provisions of the
Internal Revenue Code and "disregard" includes any careless,
reckless, or intentional disregard. Sec. 6662(c).
On their 1991 and 1992 Federal income tax returns,
petitioners admittedly claimed a depreciation deduction for a
boat which they now concede is not properly deductible. Mr.
Lencke purchased the boat with no business purpose. Petitioners
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