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constitutes self-employment income subject to tax under section
1401. Respondent also determined that the underpayment of tax
required to be shown on petitioners’ 1997 is a substantial
understatement of income tax and imposed a penalty under section
6662(a). Other adjustments made in the notice of deficiency are
not in dispute.
Discussion
1. Unreported Income
Petitioners acknowledge that petitioner received
compensation from AAA during 1997 that was not reported on their
1997 return but claim that petitioner received less than the
amount reported on the Form 1099-MISC issued by AAA. According
to petitioners, AAA’s monthly payroll sheets, which were used to
prepare the Form 1099-MISC issued to petitioner, overstate the
number of hours petitioner worked during 1997 and, therefore,
overstate the compensation he was paid.
On their 1997 return, petitioners expressly represented that
petitioner was unemployed during 1997 and implicitly represented
that he earned no income during that year. Neither
representation is true. In the petition filed in this case,
petitioners represent that their “records” indicate that
petitioner’s “gross” earnings from AAA during 1997 amounted to
less than $5,000. If maintained, no such “records” were
presented at trial. At trial, petitioners estimated that
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