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on the return was $1,100. This results in a $550 increase in tax
over the tax reported on the return. The Commissioner also
determines that the underpayment is due to fraud. Therefore, the
estate would be liable for the additional $550 tax plus the fraud
penalty in the amount of $412.50 (.75 x $550) for a total of
$962.50 ($550 + $412.50).
Now assume that in the resulting litigation, respondent's
determination is upheld on all points, but in contesting the
case, the estate incurs expenses of $1,000. These expenses
reduce the value of the taxable estate to $1,000, which in turn
results in a total tax liability of $550 ($1,000 x .55), the same
amount reported on the fraudulent return. Pursuant to the
majority opinion, the estate would pay no additional tax and no
fraud penalty. Even though the estate lost all of the issues in
litigation and spent $1,000, its real out-of-pocket costs would
not exceed $37.50.
The results that will occur under the majority's holding can
be avoided by a reasonable interpretation of section 6663(a).
Section 6663(a) should be interpreted as providing that the fraud
penalty be imposed on the difference between the amount of tax
that was required to be shown on the return and the amount that
was actually shown on the return. This interpretation is
supported by the words of section 6663, the language in related
sections of the Code, case law, and common sense. There is
simply no reason why we should interpret the statutory language
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