Dennis and Dorinda J. Jelle - Page 14




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               In general then, section 86(a)(1) provides that gross income           
          includes the lesser of:  (1) One-half of the Social Security                
          benefits received during the year; or (2) one-half of the excess            
          of the sum of (a) modified adjusted gross income plus (b) one-              
          half of the Social Security benefits, over the base amount.  The            
          includable percentage is increased, however, if modified adjusted           
          gross income plus one-half of the Social Security benefits                  
          exceeds an adjusted base amount of, for a joint return, $44,000.            
          See sec. 86(a)(2), (c)(2)(B).  Accordingly, petitioners are                 
          subject to the greater inclusion, which, on these facts, would be           
          calculated at 85 percent of the Social Security benefits                    
          received.  See sec. 86(a)(2).  We therefore sustain respondent’s            
          determination that $2,907, 85 percent of the stipulated $3,420 in           
          Social Security benefits, must be included in petitioners’ gross            
          income for 1996.                                                            
          III.  Accuracy-Related Penalty                                              
               Subsection (a) of section 6662 imposes an accuracy-related             
          penalty in the amount of 20 percent of any underpayment that is             
          attributable to causes specified in subsection (b).  Among the              
          causes so enumerated is any substantial understatement of income            
          tax.  See sec. 6662(b)(2).  A “substantial understatement” is               
          defined in section 6662(d)(1) to exist where the amount of the              
          understatement exceeds the greater of 10 percent of the tax                 
          required to be shown on the return for the taxable year or                  






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