Kenneth and Dorothy Hitchen - Page 14

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          an underpayment for a taxable year that is attributable to                  
          valuation overstatements is $1,000 or greater.  Sec. 6659(d).               
          The amount of the addition to tax varies depending upon the size            
          of the discrepancy in the valuation.  Sec. 6659(b).  The                    
          Secretary has the discretion to waive the section 6659 addition             
          to tax if the taxpayer shows that there was a “reasonable basis             
          for the valuation” and that the claim was “made in good faith.”             
          Sec. 6659(e).                                                               
               With respect to petitioners’ taxable year 1989, section                
          6662(a) imposes a 20-percent accuracy-related penalty on the                
          portion of an underpayment attributable to any one of various               
          factors, one of which is a “substantial valuation misstatement              
          under chapter 1”.  Sec. 6662(b)(3).  A “substantial valuation               
          misstatement under chapter 1" exists “if * * * the value of any             
          property (or the adjusted basis of any property) claimed on any             
          return of tax imposed by chapter 1 is 200 percent or more of the            
          amount determined to be the correct amount”.  Sec. 6662(e)(1).              
          The penalty applies only if an underpayment for a taxable year              
          that is attributable to substantial valuation overstatements by             
          an individual taxpayer is greater than $5,000.  Sec. 6662(e)(2).            
          The section 6662(a) penalty is increased to 40 percent in the               
          case of “gross valuation misstatements”, which occurs where the             
          overvaluation described above is 400 percent or more, rather than           
          200 percent or more, of the correct amount.  Sec. 6662(h)(2)(A).            

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