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Fraud Penalty
Section 6663(a) provides that "If any part of any
underpayment of tax required to be shown on a return is due to
fraud, there shall be added to the tax an amount equal to 75
percent of the portion of the underpayment which is attributable
to fraud." In the notice of deficiency, respondent determined
section 6663 civil fraud penalties against Phillip, at the
statutory rate of 75 percent of the deficiency attributable to
the 1992, 1993, and 1994 embezzlement income. In entering the
March 20, 2000, settlement, the parties agreed that Phillip was
liable for the civil fraud penalty under section 6663 at a rate
of 37.5 percent, rather than the statutory 75 percent.
Respondent asserts that Phillip conceded the fraud penalty.
Petitioners contend that Phillip agreed to permit the assessment
of an amount equal to one-half of the amount of the fraud penalty
but never conceded that the returns were fraudulent. We think
that by agreeing that Phillip was liable for the fraud penalty,
even at the reduced rate, petitioners have conceded that the
returns were fraudulent.
Furthermore, a review of the record of this case reveals
that respondent was reasonable in determining that petitioners'
omission of income from the Ponzi scheme was attributable to
fraud.
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