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The claimed loss was a term life insurance policy that had
no cash surrender value upon termination, as distinguished from a
whole life insurance policy that generally has a cash surrender
value over time as premiums are paid. Petitioners admit that
their term insurance policy had no cash surrender value, and that
any obligations under the policy simply terminated upon the
cessation of premium payments.
Petitioners produced no evidence of a basis in the subject
term insurance policy.5 Thus, petitioners are not entitled to a
deduction for a casualty or theft loss in 1997. Respondent is
sustained on this issue.
The final issue is whether petitioners are liable for the
accuracy-related penalty under section 6662(a) for a substantial
understatement in tax or for negligence or disregard of rules or
regulations.6 Section 6662(a) provides that, if it is applicable
5 Accordingly, the Court need not address the question of
whether petitioners actually suffered a casualty or theft within
the meaning of sec. 165(c)(3).
6 The notice of deficiency stated that $16,056 of the
understatement of tax required to be shown on the return for 1997
constituted a substantial understatement of income tax (within
the meaning of sec. 6662(b)(2)) or was due to negligence or
disregard of rules or regulations (within the meaning of sec.
6662(b)(1)). Additionally, respondent's trial memorandum asserts
that the underpayment was both substantial and due to negligence
or disregard of rules or regulations. Neither the notice of
deficiency nor the trial memorandum explains why the sec. 6662(a)
penalty was applied to an underpayment of only $16,056, rather
than to the entire deficiency of $20,453.
The maximum accuracy-related penalty imposed on an
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