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After concessions,2 we must decide the following issues:
(1) Whether petitioners failed to include $28,837 of
taxable interest income in gross income for 1996. We hold that
they did.
(2) Whether petitioners must include Social Security
benefit payments received during 1996 in their gross income as
determined by respondent. We hold that they must.
(3) Whether petitioners are liable for the accuracy-related
penalty as determined by respondent. We hold that they are to
the extent provided herein.
Background
Petitioners, husband and wife, resided in Pensacola,
Florida, when the petition in this case was filed. At the time
of trial, petitioners were both in their late seventies, and
petitioner Bernard J. Penn (Mr. Penn) was diagnosed with stomach
cancer in late 1995. Mr. Penn was retired from a career as a
practicing attorney and a tax return preparer. Petitioners
jointly filed their Federal income tax return for the year in
issue on October 15, 1997, and respondent’s examination of such
return began after July 22, 1998.
For several years, Mr. Penn and petitioner Thelma I. Penn
(Mrs. Penn) purchased tax certificates that were sold at auction
2 At trial, respondent conceded that petitioners may deduct
a loss of $3,517.23 for 1996 in connection with the cancellation,
pursuant to Florida law, of certain tax certificates they held.
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