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and the losses reported on their income tax returns. Certain
facts and circumstances relevant in determining the applicability
of the additions to tax and accuracy-related penalties were known
solely to petitioners. Petitioners’ failure to introduce
evidence solely in their possession or peculiarly within their
knowledge creates a negative inference that the evidence, if
introduced, would be unfavorable to them. See Streber v.
Commissioner, 138 F.3d 216, 221-222 (5th Cir. 1998), revg. T.C.
Memo. 1995-601; Shaw v. Commissioner, 27 T.C. 561, 573 (1956),
affd. 252 F.2d 681 (6th Cir. 1958). While we have given careful
consideration to the arguments presented by petitioners’ counsel,
we cannot overlook the evidentiary gaps created by petitioners’
decision not to attend and provide testimony at their trial.
A. Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for a
taxpayer’s failure to file a required return on or before the
specified filing date, which is determined with consideration of
any extension of time for filing. The amount of the liability is
based upon a percentage of the tax required to be shown on the
return. Sec. 6651(a)(1). The addition to tax is inapplicable,
however, if the taxpayer’s failure to file the return was due to
“reasonable cause and not due to willful neglect”. Id.
Generally, income tax returns made on the basis of the
calendar year must be filed on or before the 15th day of April
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