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and he agreed to file an amended 1990 tax return. Petitioner’s
accountant and the examiner discussed whether the insurance
income should have been reported on a corporate tax return
because the insurance business had been incorporated sometime
near 1990. Ultimately, however, the income was reported on the
amended return petitioner filed.
On December 7, 1997, petitioner filed the amended return,
reflecting increased income of $99,095, a correct tax of $34,374,
and an increase in tax of $33,255. Respondent determined that
the entire underpayment was attributable to fraud and that
petitioner was liable for civil fraud penalties of $26,050 under
section 6663 for the 1990 taxable year.4
OPINION
If any part of an underpayment is due to fraud, a penalty
equal to 75 percent is imposed on the portion of the underpayment
which is attributable to fraud.5 Sec. 6663(a). Fraud is defined
4Respondent’s determination of the amount of penalty appears
to be incorrect because the amount is based on the total correct
tax, not the portion of the underpayment attributable to fraud.
Consequently, it does not give petitioner credit for the $1,479
of tax shown on the original return. Therefore, if we find that
the underpayment of tax is attributable to fraud, the penalty
should be based on no more than the total underpayment of
$33,255, not the total correct tax of $34,374.
5Pursuant to sec. 1.6664-2(c)(2), Income Tax Regs., for
purposes of ascertaining the underpayment on which the sec. 6663
penalty is based, the tax shown on an amended return is not
substituted for the tax shown on the return as originally filed
if the latter was fraudulent.
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