- 25 -
understatement of income tax. Sec. 6662(a) and (b)(2).5 An
understatement is “substantial” when the understatement for the
taxable year exceeds the greater of (1) 10 percent of the tax
required to be shown or (2) $5,000 ($10,000 in the case of a
corporation). Sec. 6662(d)(1)(A) and (B). The understatement is
reduced to the extent that the taxpayer has (1) adequately
disclosed his or her position, or (2) has substantial authority
for the tax treatment of an item. Sec. 6662(d)(2)(B).
Additionally, no penalty is imposed with respect to any portion
of an understatement as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1).
Petitioners do not claim adequate disclosure on their
returns. They do claim substantial authority. However, in
making that claim, they refer generally to the portions of their
brief containing their arguments that neither a deposit nor a
taxpayer’s receipt of his own funds is an item of gross income
and the expenditures in question were made by American Valmar as
an agent for its clients. We have rejected the factual basis of
petitioners’ claim, and, thus, what authority they cite is not
relevant to the facts of this case and cannot constitute
5 Respondent determined an alternative basis for the penalties
imposed by sec. 6662 on account of negligence or disregard of
rules and regulations. See sec. 6662(a) and (b). Respondent
failed to address that alternative basis on brief, so we will
assume that respondent has abandoned that alternative. See
Bernstein v. Commissioner, 22 T.C. 1146, 1152 (1954), affd. 230
F.2d 603 (2d Cir. 1956); Lime Cola Co. v. Commissioner, 22 T.C.
593, 606 (1954); Roberts v. Commissioner, T.C. Memo. 1996-225.
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011