Kern S. and Soledad D. Smith - Page 5

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          of proving otherwise.  Rule 142(a); Welch v. Helvering, 290 U.S.            
          111, 115 (1933).  Section 61(a) includes in gross income all                
          income from whatever source derived, including gross income                 
          derived from business.  Sec. 61(a)(2).                                      
               Petitioners have shown, and respondent has conceded, that              
          they are entitled to deduct $114,394 in business expenses, and we           
          so find.                                                                    
               Section 6651(a)(1) imposes an addition to tax for failure to           
          file a timely return, unless the taxpayer establishes:  (1) The             
          failure did not result from willful neglect, and (2) the failure            
          was due to reasonable cause.  Petitioners did not offer any                 
          reason for the late filing of their return.  Therefore,                     
          respondent’s determination is sustained.                                    
               Next we consider whether petitioners are liable for a                  
          negligence penalty under section 6662(a).  The penalty amounts to           
          20 percent of the portion of the underpayment attributable to               
          negligence.  Respondent determined that the entire underpayment             
          is due to negligence.  We agree.                                            
               "Negligence" includes any failure to make a reasonable                 
          attempt to comply with the Internal Revenue Code.  Sec. 6662(c).            
               Petitioner failed to report $183,585 in income.  In response           
          to a question from the Court, he testified that he was trying to            
          operate his business out of a trust in order to avoid taxes, but            
          that he "did not do it correctly".  He apparently believed that             





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