William N. Kellahan, Jr. and Alice H. Kellahan - Page 24




                                       - 24 -                                         

               In this case, petitioners did not have “ample evidence                 
          discrediting the estimate” of zero tax liability and in fact had            
          some evidence supporting it.  Petitioner received a letter from a           
          licensed contractor prior to filing the Form 4868, which stated             
          that the cost of constructing a canal similar to the Canal would            
          be $107,134.50.  Given that a copy of this letter was ultimately            
          attached to their tax return as filed, we believe petitioners               
          estimated the value of their contribution of the Canal using                
          replacement cost.  Petitioners thus made an effort to locate                
          evidence which, although incorrectly used, was sufficient for               
          purposes of their Form 4868 estimate, particularly in light of              
          the fact that valuing this property involved complicated legal              
          issues and posed a genuine challenge for both experts who                   
          testified in this case.  Accordingly, petitioners are not liable            
          for the addition to tax under section 6651(a) for 1990.                     
          III.  Accuracy-Related Penalties                                            
               In the notice of deficiency, respondent determined that                
          petitioners were liable for accuracy-related penalties under                
          section 6662(h) for both 1990 and 1992.  Section 6662(h) applies            
          when there is a substantial valuation overstatement in which the            
          value of any property claimed on a tax return is 400 percent or             
          more of the value determined to be correct.  See sec.                       
          6662(h)(2)(A), (e)(1).  However, no penalty is imposed unless the           
          portion of the underpayment attributable to substantial valuation           





Page:  Previous  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  Next

Last modified: May 25, 2011