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as to consider him an employee. It follows that the compensation
that petitioner received from AAA during 1997 does not constitute
self-employment income within the meaning of section 1401.
3. Substantial Understatement of Income Tax
Section 6662(a) imposes an accuracy-related penalty of 20
percent of any portion of an underpayment of tax that is
attributable to a substantial understatement of income tax.
Sec. 6662(b)(2), (d). An understatement of income tax is a
substantial understatement of income tax if it exceeds the
greater of $5,000 or 10 percent of the tax required to be shown
on the taxpayer’s return. Sec. 6662(d)(1).
Ignoring conditions not relevant here, for purposes of
section 6662, an understatement is defined as the excess of the
amount of the tax required to shown on the taxpayer’s return over
the amount of the tax which is shown on the return. Sec.
6662(d)(2)(A). In this case, for purpose of section 6662, the
amount of tax required to be shown on petitioners’ 1997 return is
$1,796.2 The amount of tax shown on the return is zero.3
Because the difference between these two amounts is less than
2 This is the sec. 1 income tax that results from including
in petitioners’ 1997 income the compensation that petitioner
received from AAA during that year.
3 Unlike the computation of a deficiency under sec. 6211 or
the computation of an understatement for purposes of sec. 6694,
the earned income credit claimed on petitioners’ 1997 return (and
disallowed in the notice of deficiency) is not taken into account
in the computation of the understatement of income tax for
purposes of sec. 6662.
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