Compact Equipment Company - Page 27




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          Commissioner proves that any portion of the underpayment is                 
          attributable to fraud, the entire underpayment is treated as                
          attributable to fraud, except with respect to any portion which             
          the taxpayer establishes is not attributable to fraud.                      
               In the instant case, the Atkinsons concede that they                   
          fraudulently failed to include in income the construction                   
          expenses.  Therefore, pursuant to amended section 6653(b)(2), the           
          underpayment associated with the failure to include in income the           
          construction expenses and the credit card charges is treated as             
          attributable to fraud unless the Atkinsons prove otherwise.  The            
          Atkinsons have failed to prove that the failure to include in               
          income the credit card charges is not attributable to fraud.                
          Hence, the fraud additions to tax determined by respondent under            
          amended section 6653(b)(1)(A) and (B) are sustained.                        
          III.  Substantial Understatement of Tax                                     
               The final issue for decision is whether petitioners are                
          liable for the addition to tax under section 6661.  For                     
          assessments made after October 21, 1986, section 6661(a) provides           
          for an addition to tax equal to 25 percent of the amount of any             
          underpayment attributable to a substantial understatement of tax.           
          See Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509,              
          sec. 8002(a), 100 Stat. 1874, 1951.  An understatement is                   
          substantial if it exceeds the greater of $5,000 ($10,000 in the             
          case of a corporation) or 10 percent of the tax required to be              






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