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Valenza and Mrs. Vazzana's estate are not liable for the
additions to tax for fraud. See secs. 6653(b)(3), 6663(c).
Petitioners have established that the remaining portions of the
deficiencies did not result from their fraudulent intent.
VII. Additions to Tax for Negligence
Respondent determined that petitioners, pursuant to section
6653(a), are liable for additions to tax for negligence for 1988.
Petitioners concede that they were negligent. Accordingly, we
hold petitioners liable for the negligence additions to tax
relating to the portions of the deficiencies that are not
attributable to fraud. See sec. 6653(a)(2).
VIII. Additions to Tax for Substantial Understatement
Respondent determined that petitioners were liable, pursuant
to section 6661, for additions to tax for substantial
understatements relating to 1988. Section 6661 provides that if
there is a substantial understatement of income tax, there shall
be added to the tax an amount equal to 20 percent of the amount
of any underpayment attributable to such understatement. Sec.
6661(a). An understatement is the difference between the amount
of tax required to be shown on the return and the amount of tax
actually shown on the return. Sec. 6661(b)(2). An
understatement is substantial if it exceeds the greater of $5,000
or 10 percent of the amount of tax required to be shown on the
return. Sec. 6661(b)(1). The understatement is reduced,
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