- 12 -
that they did not. According to petitioners, respondent's
analysis is flawed because the estimated living expenses used
therein to calculate the purported understatement were much
greater than their actual living expenses.
We agree with petitioners that respondent's determination on
this issue is wrong, but we do so mainly for different reasons.
Respondent's determination is based erroneously on the assumption
that petitioners paid all $63,297 of the expenses which they
deducted for Harris Enterprises. As we have held above, however,
petitioners did not pay the amounts claimed for advertising
($5,275), gravel parking lot ($2,900), and water well replacement
($6,500). When these nonpayments are factored into respondent's
analysis, the understatement drops to a mere $2,339 ($17,014 -
$14,675). Seeing further that respondent's analysis failed to
give proper regard to the fact that petitioners were financially
handicapped during the relevant years, we believe that it is
reasonable to conclude that petitioners spent $2,339 less in cash
expenditures than the amount that was set forth in respondent's
analysis. We hold for petitioners on this issue.
4. Additions to Tax/Accuracy-Related Penalty
Respondent determined an addition to tax under section
6651(a), asserting that petitioners failed to file timely a 1992
Federal income tax return, and that they did not show that their
failure was due to reasonable cause. In order to avoid this
addition to tax, petitioners must prove that their failure to
file was: (1) Due to reasonable cause and (2) not due to willful
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