- 23 -
After adjustments,5 respondent determined that the amounts
of tax required to be shown on the returns are $7,701, $9,994,
and $9,473, and that the amounts of the understatements of tax
are $6,668, $9,683, and $10,019, for 1992, 1993, and 1994,
respectively. As each of these amounts exceeds the greater of 10
percent of the tax required to be shown on the return or $5,000
for the year at issue, respondent applied the penalty at issue.
Petitioners assert that there was no understatement, and that if
the Court finds there was substantial understatement, the penalty
should not apply because reporting all of their income and
deductions on their tax returns is adequate disclosure.
Section 6662(d)(2)(B) provides that the amount of the
understatement shall be reduced by the portion of the
understatement that is attributable to tax treatment of any item
if: (1) There is or was substantial authority for such treatment;
or (2) if the relevant facts affecting the item's treatment are
adequately disclosed in the return or in a statement attached to
the return.6
5 In addition to disallowing certain deductions, respondent
determined that computational adjustments should be made which
would preclude petitioners from claiming the earned income credit
during the years at issue.
6 This subsection was amended by Omnibus Budget
Reconciliation Act of 1993, Pub. L. 103-66, sec. 13251(a), 107
Stat. 531, effective with respect to returns the due dates for
which (determined without regard to extensions) are after Dec.
31, 1993. The amended subsection provides, in part, that the
(continued...)
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011