Stephen L. and Colleen Atwood - Page 9




                                        - 9 -                                         

          was nondeductible personal interest under section 163(h),                   
          however, the issue is moot.                                                 
               We hold, therefore, that petitioners are taxable on                    
          distributions from their terminated policies in the amount of               
          $38,117 and are not entitled to deductions for interest paid on             
          their policy loans.                                                         

          Substantial Understatement of Income Tax                                    
               Respondent also determined an accuracy-related penalty under           
          section 6662 for a substantial understatement of tax for taxable            
          year 1995.  Section 6662(a) imposes a 20-percent penalty on the             
          portion of an underpayment of tax attributable to, among other              
          things, a substantial understatement of income tax, which is                
          defined as an understatement that exceeds the greater of 10                 
          percent of the tax required to be shown or $5,000.  Sec.                    
          6662(d)(1)(A).  Petitioners reported total tax of $6,231 and                
          understated their tax in the amount of $10,756.  Therefore, there           
          was a substantial understatement of tax.                                    
               Any understatement is reduced to the extent that it is                 
          attributable to an item that was adequately disclosed and has a             
          reasonable basis, or for which there was substantial authority              
          for its tax treatment.  Sec. 6662(d)(2)(B).  Notwithstanding that           
          petitioners were issued Forms 1099-R indicating taxable                     
          distributions upon termination of their insurance policies,                 
          petitioners made no disclosure on their return of the relevant              




Page:  Previous  1  2  3  4  5  6  7  8  9  10  Next

Last modified: May 25, 2011