- 38 -
reasonable for petitioner to exclude the settlement on the basis
of his attorney’s characterization of the settlement as for
punitive damages.
With respect to the disallowed deductions, the negligence
penalty or addition to tax applies, and petitioner has not shown
reasonable cause. His negligence is on the basis of his failure
to maintain records and failure to comply with rules or
regulations. As to petitioner’s claim of ordinary loss status
for his option trading activity, his business experience as a
stockbroker and educational background placed petitioner in a
position where he knew or should have known that his activity was
not entitled to ordinary loss treatment. See, e.g., Walker v.
Commissioner, T.C. Memo. 1990-609.
XI. Substantial Understatement Liabilities11
Section 6661, as applicable for 1987 and 1988,12 provides
for a 25-percent addition to tax for substantial understatements
of tax liability. See Pallottini v. Commissioner, 90 T.C. 498,
11 Respondent had determined that the fraud penalty applied
for each of the taxable years. As an alternative, respondent
determined that the substantial understatement penalty applied in
each year. Respondent conceded that the fraud penalty does not
apply.
12 Sec. 6661 was repealed for years with return due dates
after Dec. 31, 1989, and recodified in sec. 6662.
Page: Previous 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 NextLast modified: May 25, 2011