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We have found that petitioner failed to report certain items
of income, including interest and tax refunds. These amounts
were not disclosed on the return, and it was not reasonable for
petitioner to fail to report these items, especially in light of
the fact that Forms 1099 were issued with respect to them. We
therefore hold that the substantial understatement addition to
tax may be applicable with respect to these income adjustments
for 1987 and 1988.
Petitioner claimed various itemized deductions including
mortgage interest, employee expenses, and casualty losses.
Respondent has agreed that petitioner is entitled to mortgage
interest deductions in each year in amounts that are less than
the amount claimed by petitioner. Respondent also disallowed
casualty losses in 2 years due to failure to exceed the statutory
threshold and failure to substantiate. Finally, respondent
disallowed petitioner’s claimed employee business expenses for
travel, entertainment, and meals. With respect to each category,
petitioner failed to substantiate amounts in excess of those
allowed by respondent or failed to adequately substantiate any
amount with respect to the employee business expenses and the
casualty losses. Petitioner has not shown a reasonable basis or
adequate disclosure for those items, and, accordingly, to the
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