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the proceeds from the sale of ACT’s assets on their individual
Federal income tax returns.
Summary
For taxable years 1986, 1987, and 1988, petitioners are
liable for the section 6653(b)(1) addition to tax solely as
results from their fraudulent underreporting of the gas rebate
payments.
Issues 7 and 8. Additions to Tax for Substantial Understatement
Respondent determined that the Morrises are liable for
additions to tax pursuant to section 6661 for taxable years 1986
and 1987, and that Briggs is liable for section 6661 additions to
tax for taxable years 1986, 1987, and 1988.
Section 6661 imposes a 25-percent addition to tax on any
underpayment attributable to a substantial understatement of
income tax. A substantial understatement of tax is one that
exceeds the greater of 10 percent of the tax required to be shown
on the return or $5,000. See sec. 6661(b)(1)(A). For this
purpose, the amount of the understatement is to be reduced by the
portion attributable to any item for which there was substantial
authority or any item that was adequately disclosed. See sec.
6661(b)(2)(B). In addition, the Commissioner may waive all or
part of a section 6661 addition to tax upon a showing by the
taxpayer that there was reasonable cause for the understatement
and that the taxpayer acted in good faith. See sec. 6661(c).
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