David O. Alegria - Page 9

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          balance.5  Accordingly, respondent’s determination is sustained             
          on this issue.  Rule 142(a); Welch v. Helvering, supra.                     
          B.   Section 6662(a) Penalty                                                
               In the notice of deficiency, respondent determined that                
          petitioner is liable under section 6662(a) for an underpayment of           
          tax that is attributable to substantial understatement of income            
          tax.                                                                        
               Section 6662(a) imposes a penalty equal to 20 percent of any           
          underpayment of tax that is attributable to substantial                     
          understatement of income tax.  See sec. 6662(a) and (b)(2).  An             
          understatement of income tax is “substantial” if it exceeds the             
          greater of 10 percent of the tax required to be shown on the                
          return, or $5,000.  Sec. 6662(d)(1)(A).  An “understatement” is             
          defined as the excess of the tax required to be shown on the                
          return over the tax actually shown on the return.  Sec.                     
          6662(d)(2)(A).  Tax is not understated to the extent that the               
          treatment of the item related thereto is based on substantial               
          authority or is adequately disclosed in the return or in a                  
          statement attached to the return, and there is a reasonable basis           
          for the tax treatment of such item by the taxpayer.  Secs.                  
          6662(d)(2)(B), 6664(c)(1).                                                  



               5  There is evidence in the record, including petitioner’s             
          own testimony, to suggest that petitioner was not able to pay his           
          credit card debt without financial hardship.                                





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