Stanley J. Zaban and Shirley A. Zaban - Page 31

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             Issue 5.  Substantial Understatement Additions to Tax                                                
                    The fifth issue for decision is whether petitioners are liable                                
             for additions to tax for the substantial understatement of tax for                                   
             1986, 1987, and 1988 and an accuracy-related penalty  for                                            
             substantial understatement of tax for 1990.  Respondent determined                                   
             additions to tax for the substantial understatement of tax pursuant                                  
             to section 6661 for 1986, 1987, and 1988, and an accuracy-related                                    
             penalty pursuant to section 6662 for 1990.7  Mrs. Zaban asserts                                      
             that she had reasonable cause and acted in good faith for those                                      
             years and thus is excepted from the substantial understatement                                       
             addition to tax and the accuracy-related penalty pursuant to                                         
             section 6664(c).                                                                                     
                    Mrs. Zaban's argument is without merit.  The reasonable cause                                 
             exception to the addition to tax for the substantial understatement                                  
             of tax and the accuracy-related  penalty  for  substantial                                           
             understatement of tax are not applicable to taxpayers filing tax                                     
             returns prior to December 31, 1989.  Omnibus Budget Reconciliation                                   
             Act of 1989 (OBRA), Pub. L. 101-239, sec. 7721(a), 103 Stat. 2106,                                   
             2395. Thus, the reasonable cause exception does not apply to                                         


                    7     For tax years 1986, 1987, and 1988, sec. 6661 imposed                                   
             additions to tax of 25 percent of the amount of any underpayment                                     
             attributable to a substantial understatement.  A substantial                                         
             understatement is defined as an understatement which exceeds the                                     
             greater of 10 percent of the tax required to be shown on the                                         
             return or $5,000.  Sec. 6661(b).                                                                     
                    For tax year 1990, sec. 6662 imposed an accuracy-related                                      
             penalty of 20 percent of the underpayment attributable to a                                          
             substantial understatement.                                                                          



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