- 33 -
made an erroneous computation of their 1992 NOL and their
resulting carryforward deductions. They failed to report
$2,052,385.23 of foreclosure income that they realized from the
sale of 15 Isabella in 1992. They failed to substantiate
properly their expenses in the Atherton project, and they failed
to maintain adequate records for purposes of determining their
correct tax liability for 1992, 1996, and 1997. See Higbee v.
Commissioner, supra at 449; Joseph v. Commissioner, T.C. Memo.
2003-19 (failure to substantiate items properly is evidence of
negligence); Bishop v. Commissioner, T.C. Memo. 2001-82; sec.
1.6662-3(b)(1), Income Tax Regs. They overstated their
depreciation deductions by at least $148,747 for 1993, $324,033
for 1994, $324,033 for 1995, and $324,033 for 1996. These
overstatements reduce the amount of the NOL available for a
carryforward to the 1996 and 1997 taxable years and also result
in an additional adjustment of $324,033 for the 1996 taxable
year. We find that the understatements for 1996 and 1997 are
attributable to petitioners’ negligence in failing to ascertain
their correct income tax liability, in failing to maintain
required records, and in failing to substantiate their
construction expenses.
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.
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011