- 15 -
tax shown on the 1996 return was $1,174. The tax required to be
shown on the return was $26,095. Ten percent of $26,095 is
$2,609.50. The amount of the understatement of tax on
petitioners’ return is $24,921. Respondent has therefore
demonstrated that petitioners have substantially understated
their income tax for 1996.
Further, according to the regulations, negligence includes
“any failure by the taxpayer to keep adequate books and records”.
Sec. 1.6662-3(b), Income Tax Regs. In this instance petitioners
were negligent by failing to keep adequate books or records and
report the income items. Therefore, on the basis of substantial
understatement of income tax and petitioners’ failure to keep
adequate records, the accuracy-related penalty applies to the tax
on $33,415 of underreported income.
Petitioners concede that they made a $10,000 computational
error on their original return which resulted in an
underreporting of income. This computational error resulted in a
32.88-percent understatement of the income petitioners reported.
Petitioners have not provided a reasonable explanation for the
resulting portion of the understatement of income tax or shown
that they exercised reasonable care in the preparation of their
tax return. See sec. 1.6662-3(b)(1), Income Tax Regs.
Accordingly, petitioners are liable for the accuracy-related
penalty with regard to the $10,000 error.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011