Estate of Kevin J. Lorenz, Deceased, Elizabeth J. Lorenz, Personal Representative and Elizabeth J. Lorenz - Page 9

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            Respondent calculated the fraud penalty for Mrs. Lorenz by                                  
            applying a 20-percent rate to Mr. and Mrs. Lorenz's total                                   
            underpayment for each year.                                                                 
                  Petitioners contend that respondent should have computed the                          
            fraud penalty by applying 20 percent of one-half of the total                               
            underpayment for Mrs. Lorenz and 75 percent of one-half of the                              
            total underpayment for the estate of Mr. Lorenz.  We disagree.                              
                  Section 6663 imposes a 75-percent fraud penalty. Section                              
            6663(b) and (c) provides:                                                                   
                        (b)  Determination of Portion Attributable to                                   
                  Fraud.--If the Secretary establishes that any portion                                 
                  of an underpayment is attributable to fraud, the entire                               
                  underpayment shall be treated as attributable to fraud,                               
                  except with respect to any portion of the underpayment                                
                  which the taxpayer establishes (by a preponderance of                                 
                  the evidence) is not attributable to fraud.                                           
                        (c)  Special Rule for Joint Returns.--In the case                               
                  of a joint return, this section shall not apply with                                  
                  respect to a spouse unless some part of the                                           
                  underpayment is due to the fraud of such spouse.                                      
                  Mr. and Mrs. Lorenz filed joint returns for the years in                              
            issue.  Thus, Mrs. Lorenz and the estate of Mr. Lorenz are                                  
            jointly and severally liable for the penalty for civil fraud if                             
            respondent establishes that Mrs. Lorenz is liable for the fraud                             
            penalty independent of the liability of the estate of Mr. Lorenz.                           
            See Meier v. Commissioner, 91 T.C. 273, 303 n.34 (1988) (for sec.                           
            6653(b)); Stone v. Commissioner, 56 T.C. 213, 227-228 (1971).                               
            The basis of settlement provides that the civil fraud penalty                               

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