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during the year, subject to certain other adjustments not
relevant here. Sec. 86(b)(2).
At trial, Mr. Penn admitted that during 1996 petitioners
received Social Security benefit payments totaling $8,496.
Petitioners reported adjusted gross income of $24,082.49 for
1996, and we have found that petitioners failed to report an
additional $28,837 of taxable interest income for that year.
Taking into account the $3,517.23 loss on canceled tax
certificates, as conceded by respondent, petitioners’ modified
adjusted gross income for 1996 therefore equals $49,402.26. The
sum of petitioners’ modified adjusted gross income plus one-half
of their Social Security benefits ($4,248) is $53,650.26. Since
this amount exceeds $44,000, up to 85 percent of petitioners’
Social Security benefits is includable in gross income. We
anticipate that the precise amount of Social Security benefits
includable in petitioners’ 1996 gross income will be ascertained
by the parties in connection with computations under Rule 155.
Issue 3. Accuracy-Related Penalty
We must also decide whether petitioners are liable for the
section 6662(a) accuracy-related penalty. Respondent determined
that petitioners’ entire tax underpayment for the year in issue
was the result of a substantial understatement of tax. Section
6662(a) provides for an accuracy-related penalty of 20 percent of
any tax underpayment that is attributable to a substantial
understatement of income tax. Section 6662(d)(1) defines a
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