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disclosure of indebtedness issue, which was adequate
for that issue, also applies to the capital gain from
the same transaction.
* * * * * * *
The Petitioners adequately disclosed their position by
indicating that the entire debt forgiveness should not
be recognized due to Petitioners’ insolvency. In
Petitioners’ calculation, there was no capital gain,
only gain from the discharge of indebtedness. * * *
As we understand petitioners’ position with respect to the
accuracy-related penalty relating to the underpayment of tax
attributable to petitioners’ capital gain, they advance two
separate contentions. First, petitioners maintain that they made
adequate disclosure under section 6662(d)(2)(B)(ii)(I) regarding
that gain by attaching Form 1099-A to petitioners’ joint return
and writing thereon “Taxpayer Was Insolvent – No Tax Conse-
quence”. Second, petitioners maintain that they did not know
that the value of the Yantari when it was sold at the foreclosure
sale was $95,000, and consequently they did not know that there
was a gain on that sale. According to petitioners, they there-
fore had a reasonable basis for, and were not negligent in,
failing to report petitioners’ capital gain in petitioners’ joint
return.
Section 6662(a) imposes an accuracy-related penalty equal to
20 percent of the underpayment of tax resulting from, inter alia,
a substantial understatement of income tax, see section
6662(b)(2), or negligence or disregard of rules or regulations,
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