- 9 -
greater of 10 percent of the tax required to be shown on the
return for the taxable year or $5,000. Sec. 6662(d)(1)(A). An
understatement is the excess of the tax required to be shown on a
return for the taxable year over the amount of the tax imposed
which is shown on the return. Sec. 6662(d)(2)(A). The
understatement is reduced where the taxpayer has substantial
authority for his tax treatment of any items or where the
relevant facts affecting the item’s tax treatment are adequately
disclosed in the return or in a statement attached to the return
and there is a reasonable basis for such tax treatment. Sec.
6662(d)(2)(B). Petitioners rely on section 162 and section
1.162-1, Income Tax Regs., as substantial authority for taking
their deductions; however, given the particular circumstances of
this case, we cannot agree that those authorities represent
substantial authority for petitioners’ deductions. Further,
simply claiming the deductions on the Schedules C attached to
their 1995 and 1996 returns does not constitute adequate
disclosure. Petitioners did not disclose any relevant facts or
attach any statement to their returns. We find a substantial
understatement of income tax in this case.
The accuracy-related penalty is not imposed if the taxpayer
shows there was a reasonable cause for the underpayment and that
he acted in good faith with respect to the underpayment. Sec.
6664(c)(1). Mr. Stewart was previously audited by respondent for
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011