- 71 -
reasonable for her to do so. We hold that the imposition of section
6653(a) additions is warranted in the case of Ms. Rivera as well.
Issue 4. Section 6621(c) Additional Interest
Section 6621(c) (formerly section 6621(d)) provides for an
increase in the interest rate where there is a substantial
underpayment (i.e., one that exceeds $1,000) in any taxable year in
which the understatement is "attributable to 1 or more tax motivated
transactions". Tax-motivated transactions include "any straddle (as
defined in section 1092(c) without regard to subsections (d) and (e)
of section 1092)". Sec. 6621(c)(3)(A)(iii).
All of the positions in the Merit T-bill and T-bond options,
as well as the stock forwards, constitute "straddles" within the
meaning of section 6621(c)(3)(A)(iii). We recognize that section
1092(d) ordinarily operates to exempt section 1092(c) from
application to positions in corporate stock or to property that is
not "actively traded". Section 6621(c)(3)(A)(iii), however,
provides that section 1092(d) does not apply to limit the definition
of "straddle" for purposes of the additional interest penalty.
Accordingly, the additional interest imposed by section 6621(c) is
applicable to all petitioners herein.
Issue 5. Section 6661 Substantial Understatement of Tax
Respondent has also determined that petitioners Richartz and
Rivera are subject to the provisions of section 6661, because of
their trading in the Merit stock forwards. Section 6661(a) imposes
an addition to tax when there is a "substantial understatement of
income tax for any taxable year". Section 6661(b)(2)(A) defines
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