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The alternative method applies when the erroneous items are
subject to tax at different rates. The erroneous items in this
case are the Form 4797 loss, the theft loss, and the
medical/dental expenses. Those items are not subject to tax at
different rates. Rather, they are all deductions used by
petitioner and Mr. Capehart on their joint return to offset
ordinary income. Accordingly, section 1.6015-3(d)(6)(i) and (ii)
Income Tax Regs., does not change the result in this case.
C. Allocation of Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty equal to
20 percent of the underpayment of tax. The parties agree that
petitioners are liable for an accuracy-related penalty under
section 6662(a) of $507 computed on an underpayment of $2,537.
For purposes of section 6662, the term “underpayment” is
defined by section 6664(a) to mean the amount by which the tax
imposed exceeds the excess of (1) the sum of (A) the amount shown
as the tax by the taxpayer on his return, plus (B) amounts not so
shown previously assessed (or collected without assessment), over
(2) the amount of rebates made. In essence, an underpayment for
purposes of section 6662 has the same meaning as a deficiency.
See secs. 6211(a), 6664(a); Downing v. Commissioner, T.C. Memo.
2005-73, supplementing T.C. Memo. 2003-347; Estate of Johnson v.
Commissioner, T.C. Memo. 2001-182, affd. 129 Fed. Appx. 597 (11th
Cir. 2005); Rice v. Commissioner, T.C. Memo. 1999-65.
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