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claimed expenses and taxes relating to several rental properties,
including the Big Sur property. Respondent determined that since
construction of the Big Sur rental property was not completed and
rental did not commence until 1994, petitioners had no ongoing
business in 1993 with regard to this property. Accordingly,
respondent reallocated from Schedule E to Schedule A, as itemized
deductions, the interest and taxes attributable to the Big Sur
property.
Petitioners bear the burden of proving that respondent’s
determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). At trial, petitioner husband indicated
that in the event section 1031 treatment were disallowed, he
“understood” respondent’s determination as to reallocation of
these expenses. On brief, petitioners did not address the issue.
Accordingly, we sustain respondent’s determination in this
regard.
Accuracy-Related Penalty
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment of tax attributable to, among other things, a
substantial understatement of income tax, which is defined as an
understatement that exceeds the greater of 10 percent of the tax
required to be shown or $5,000. Sec. 6662(d)(1)(A).
Petitioners’ failure to report the gain from the sale of the
Pacific Grove property and their disallowed claim to Schedule E
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