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notice of deficiency. The result is that petitioners' adjusted
gross income for 1993, 1994, and 1995 increased by $43,165,
$38,547, and $26,230, respectively. These adjusted gross income
amounts exceed the earned income credit phaseout amounts. The
Court holds, therefore, that petitioners are not entitled to
earned income credits for 1993, 1994, and 1995.
C. Additions to Tax and Penalties
1. Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for failure to
file a timely tax return. The addition to tax is equal to 5
percent of the amount of the tax required to be shown on the
return if the failure to file is not for more than 1 month. Id.
An additional 5 percent is imposed for each month or fraction
thereof in which the failure to file continues, to a maximum of
25 percent of the tax. Id. The addition to tax is imposed on
the net amount due. Sec. 6651(b).
The addition to tax is applicable unless a taxpayer
establishes that the failure to file was due to reasonable cause
and not willful neglect. Sec. 6651(a). If a taxpayer exercised
ordinary business care and prudence and was nonetheless unable to
file the return by the date prescribed by law, then reasonable
cause exists. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. To
prove reasonable cause, a taxpayer must show that he exercised
ordinary business care and prudence but nevertheless could not
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