Kenneth D. Shepherd and Martha A. Gregory - Page 13

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          extension only until October 15, 1993.  Petitioners have offered            
          no evidence that they were granted any further extension of time.           
               Since no explanation for the lateness of their filing was              
          offered, we hold that petitioners have not proved that their                
          failure to timely file was due to reasonable cause rather than              
          willful neglect.  Accordingly, we sustain respondent on this                
          issue.                                                                      
               The fourth issue for decision is whether petitioners are               
          liable for the section 6663(a) penalty for fraud for each of the            
          years in issue.  Respondent determined that petitioners were                
          liable for the fraud penalty for underpayments attributable to              
          disallowed deductions for household-related business expenses.              
               Section 6663(b) provides that if respondent establishes that           
          any part of any underpayment of tax required to be shown on a               
          return is due to fraud the entire underpayment shall be treated             
          as attributable to fraud and subjected to a 75 percent penalty              
          unless the taxpayer establishes, by the preponderance of the                
          evidence, that some part of the underpayment is not attributable            
          to fraud.5  Respondent must establish by clear and convincing               
          evidence:  (1) An underpayment of tax by the taxpayer, and (2)              
          that some part of the underpayment is due to fraud.  Section                


          5         We note that in the notice of deficiency respondent               
          determined that only the portion of each underpayment resulting             
          from the disallowed household expenses is attributable to fraud.            
          Therefore we need consider the fraud issue only with regard to              
          that portion of each underpayment.                                          




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