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determined in the notice of deficiency must be reduced accordingly.
We decide whether petitioners’ gross income includes the
$126,646.80 just mentioned. We hold it does not. On the basis
of this holding, we also hold without further discussion that
petitioners have no understatement for that year and, hence, that
they are not liable for the accuracy-related penalty determined
by respondent.
FINDINGS OF FACT
Some facts were stipulated and are so found. The
stipulation of facts and the accompanying exhibits are
incorporated herein by this reference. Petitioners, husband and
wife, resided in Diamond Bar, California, when their petition to
this Court was filed. They filed a joint 1999 Federal income tax
return (1999 return) that reported that Baek’s wife had during
that year received $30,243 of income. They did not report on
their 1999 return any income received by Baek.
Before 1999, Baek operated a sole proprietorship, KC, that
exported sportswear to Japan. During 1999, KC did not export any
merchandise to Japan, and KC did not receive any income.
Petitioners reported on their 1999 Schedule C, Profit or Loss
From Business (Sole Proprietorship), that KC’s gross receipts and
expenses for 1999 were both zero and that KC continued as of the
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