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addition to tax for substantial understatement of tax under
section 6661 of $14,273.
In the answer, respondent asserted additions to tax for
negligence under section 6653(a) in the alternative to additions
to tax for fraud. At trial and on brief, respondent sought an
increased deficiency and increased additions to tax as a result
of the parties’ stipulation that petitioner had unreported income
of $4,000 for taxable year 1987 in addition to the $150,000
unreported income determined by respondent in the deficiency
notice.
The issues for our consideration are: (1) Whether
petitioner is entitled to deduct legal fees or disgorgement
payments as business expenses under section 162 or section 165;
(2) whether petitioner’s deductions or losses resulted in a net
operating loss (NOL); (3) if petitioner is not entitled to an
NOL, whether he is entitled to the computational benefits of
section 1341 with respect to the disgorgement payment; (4)
whether petitioner is liable, in the alternative, for additions
to tax for fraud under section 6653(b)(1)(A) and (B) or for
negligence under section 6653(a)(1)(A) and (B); and (5) whether
petitioner is liable for an addition to tax for a substantial
understatement under section 6661.
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Last modified: May 25, 2011