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burden of proving that any amount was spent for medical care for
emotional distress. See sec. 104(a) (flush language).
Petitioner did not suffer a physical injury as a result of his
termination by UTA. Accordingly, the three payments are not
excludable pursuant to post-SBJPA section 104.
Accordingly, we hold that: (1) Petitioner is not liable for
the deficiency determined by respondent for 1996; (2) petitioner
is not entitled to an overpayment for 1996; and (3) petitioner is
liable for the deficiency determined by respondent for 1997 and
1998.
III. Section 6662 Penalty
Respondent argues that petitioner is liable for the section
6662 penalty for 1997 and 1998.31 Pursuant to section 6662(a), a
taxpayer may be liable for a penalty of 20 percent of the portion
of an underpayment of tax due to negligence or disregard of rules
or regulations or a substantial understatement of income tax.
Sec. 6662(b). An “understatement” is the difference between the
amount of tax required to be shown on the return and the amount
of tax actually shown on the return. Sec. 6662(d)(2)(A). A
“substantial understatement” exists if the understatement exceeds
the greater of (1) 10 percent of the tax required to be shown on
31 See supra note 25 regarding 1996.
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