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II. Fraud/Negligence
Section 6663(a) imposes a penalty equal to 75 percent of the
portion of the underpayment attributable to fraud. Section
6662(a) imposes a accuracy-related penalty equal to 20 percent of
the portion of the underpayment attributable to negligence or a
substantial understatement. See sec. 6662(b)(1) and (2).
For purposes of the fraud and accuracy-related penalties, an
"underpayment" is the amount by which any tax imposed by the Code
exceeds the excess of the sum of the amount shown as the tax by
the taxpayer on his return plus amounts not so shown previously
assessed (or collected without assessment) over the amount of
rebates made. Sec. 6664(a). In this case, the adjustments
respondent made in the statutory notice of deficiency stem from
the determination that petitioners are not entitled to defer
recognition of gain on their disposition of the 23d Street
property pursuant to section 1033. We have found that
petitioners are entitled to section 1033 deferral of gain;
therefore, there is no "underpayment", and petitioners are not
liable for penalties pursuant to section 6663(a) or section
6662(a).
III. Failure to File
The section 6651(a)(1) addition to tax for 1992 was based on
the deficiency determined by respondent. As a result of our
holding that petitioners are entitled to defer recognition of
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