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sufficient to characterize the advances as loans. There were no
restrictions or conditions precedent to petitioner’s use of the
advances. Further, upon receipt, petitioner had dominion over
and an unfettered right to use the advances.
Accordingly, we hold that the aggregate advance payments of
$48,420 were reportable as taxable income in petitioner’s 1993
tax year.
III. Are Petitioners Liable for Penalties Under Section
6662(a) for Substantial Understatement of Tax or The
Negligent Disregard of The Rules and Regulations?
Section 6662 provides for a 20-percent penalty on any
understatement of tax attributable to negligence or disregard of
the rules or regulations, or any substantial understatement of
income tax.11 Pursuant to section 6662(c), negligence includes
any failure to make a reasonable attempt to comply with the
Internal Revenue Code including a careless, reckless, or
intentional disregard of the Code. A substantial understatement
of tax exists if the amount of the understatement exceeds the
greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6662(d)(1)(A). If an understatement
exists, it may be reduced by the portion of the understatement
for which the taxpayer had substantial authority, or the amount
for which the taxpayer disclosed relevant facts and had a
11 As previously noted, no question has been raised with
respect to the burden of proof or production under sec. 7491.
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