Herman N. and Veronica Welter - Page 9

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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                    
               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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