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given portion of an underpayment (or 40 percent if such portion
is attributable to a gross valuation misstatement).
Petitioners concede that they were not entitled to claim
Schedule F losses of $184,000 for taxable year 1994 and $46,395
for taxable year 1995. After adjustment of petitioners’ income
tax returns to account for the disallowance of the Schedule F
losses, petitioners’ understatements of income tax for 1994 and
1995 exceeded 10 percent of the tax required to be shown on the
return and $5,000. Accordingly, there was a “substantial
understatement of income tax” in 1994 and 1995 for purposes of
section 6662(d). Because the “anti-stacking rule” of section
1.6662-2(c), Income Tax Regs., limits the accuracy-related
penalty under section 6662 to 20 percent, it is not necessary for
us to consider whether petitioners were negligent for purposes of
section 6662(c).
However, since the 20-percent penalty may be increased to 40
percent if the portion of the underpayment is attributable to a
gross valuation misstatement, we must consider the applicability
of section 6662(h). On their 1994 return, petitioners claimed
“depreciation and section 179 expenses” of $165,625 and “Expense
for the Cost Basis of Purchased Cattle that Died in 1994" of
$51,162. On their 1995 return, petitioners reported $46,395 in
“depreciation and section 179 expenses” and a net $3 loss from
the sale of cattle based upon a gross sale price of $178,500 less
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