Chad A. and Katherine J. Lincoln - Page 10

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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              
               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                  

          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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