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III. Section 6662
Respondent determined that petitioners are liable for
section 6662(a)'s accuracy-related penalty for 1989 through 1992
because there was a substantial understatement of income tax
liability. See sec. 6662(b)(2) and (d). In the alternative,
respondent determined that petitioners are liable for the
negligence penalty under section 6662(a), (b)(1), and (c).8
Section 6662(a) imposes an accuracy-related penalty equal to
20 percent of the portion of an underpayment that is due to a
substantial understatement of tax or negligence. A substantial
understatement means an understatement which exceeds the greater
of 10 percent of the tax required to be shown on the return or
$5,000. Sec. 6662(d)(1). The understatement is reduced by that
portion of the understatement for which the taxpayer had
substantial authority or for which the taxpayer adequately
disclosed the relevant facts in the return. Sec. 6662(d)(2)(B).
In order to avoid the negligence penalty, petitioners must show
that they made a reasonable attempt to comply with the provisions
of the Internal Revenue Code and that they were not careless,
reckless, or in intentional disregard of rules or regulations.
8 In brief, respondent argues only for the imposition of the
accuracy-related penalty under sec. 6662(a) and (b)(1) for
negligence or disregard of rules or regulations. We do not
interpret this to be a concession by respondent as to the penalty
for any substantial understatement of income tax and proceed
accordingly.
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