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the taxpayer can show that there was a reasonable cause for the
underpayment and that he acted in good faith with respect
thereto. Sec. 6664(c)(1).
Giving effect to respondent’s adjustments in the notice of
deficiency, petitioners’ tax liabilities for 1994 and 1996 were
$26,258 and $20,785, respectively.4 Petitioners reported tax of
$948 and $1,377 for those years. Since each of the resulting
understatements of $25,310 and $19,408 is greater than $5,000,
those understatements are substantial within the meaning of
section 6662(d)(1)(A).5 Petitioners do not contend that any
mitigating factors apply (e.g., substantial authority or adequate
disclosure), and petitioners’ counsel conceded at trial that the
issue is purely computational. Accordingly, petitioners are
liable for penalties under section 6662 as determined by
respondent.
To reflect the foregoing,
Decision will be entered
for respondent.
4 Because their commodities trading losses were capital in
nature, petitioners are entitled to deduct only $3,000 of such
losses for each of the years at issue. See sec. 1211(b).
Regarding respondent’s other adjustments, see supra note 1.
5 Ten percent of the tax required to be shown on
petitioners’ 1994 return is $2,626, and 10 percent of the tax
required to be shown on petitioners’ 1996 return is $2,079.
Since $5,000 is greater than each of those amounts, that figure
controls for purposes of determining the existence of substantial
understatements in this case. See sec. 6662(d)(1)(A).
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