-10-
T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947);
Snyder v. Commissioner, supra.
We conclude on the basis of our analysis and on the record
before us that the trusts were shams. Accordingly, we will
ignore them for Federal income tax purposes.5 We sustain
respondent’s determination that petitioners are liable for the
deficiencies in Federal income taxes for 1997 and 1998.
We now turn to the issue of the accuracy-related penalties.
Respondent determined that petitioners are liable for
accuracy-related penalties under section 6662(a) and (d) as a
result of a substantial understatement of income tax. Respondent
has the burden of production with respect to these penalties.
Sec. 7491(c). Section 6662(a) imposes an accuracy-related
penalty in the amount of 20 percent of the portion of the
underpayment attributable to any substantial understatement of
income tax. Sec. 6662(b)(2). The understatement is defined as
the excess of the amount of tax required to be shown on the
return over the amount of tax shown on the return reduced by any
rebate. Sec. 6662(d)(2). Under section 6662(d)(1), the
understatement is substantial if the amount of the understatement
exceeds the greater of (1) 10 percent of the tax required to be
shown on the return or (2) $5,000.
5 We also note that the income which was reported by the
trusts, and which respondent has treated as unreported income of
petitioners, primarily derived from Mr. Nichols’s sweeping
business.
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