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respectively. Respondent accepts the foregoing changes reported
on the Forms 1040X except for the net operating loss deductions.
Based on the Forms 1040X, we find that petitioners underreported
their Schedule C net income from Monterey by $80,214 and $54,778,
for 1987 and 1988, respectively, and failed to report a capital
gain of $27,944 for 1988. Based on respondent’s acceptance of
the decreases in interest income shown on the Forms 1040X, we
find that petitioners over reported their interest income in such
amounts. Petitioners have failed to prove their entitlement to
the net operating loss deductions claimed on the Forms 1040X, and
we allow no deductions therefor.
II. Additions to Tax for Fraud
A. Introduction
Respondent has determined additions to tax for fraud against
Joseph for both 1987 and 1988. For 1987, section 6653(b)(1)(A)
imposes an addition to tax equal to 75 percent of any
underpayment in tax if any part of the underpayment is due to
fraud; section 6653(b)(1)(B) imposes a separate addition to tax,
equal to 50 percent of the interest payable under section 6601,
determined on the portion of the underpayment attributable to
fraud. For 1988, section 6653(b)(1) imposes an addition to tax
equal to 75 percent of any underpayment in tax if any part of the
underpayment is due to fraud; the time-sensitive interest
addition previously found in section 6653(b)(1)(B) is eliminated.
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