- 11 - personal capacity one-third of the distribution. Thus, petitioners, having filed a joint return, must include one-third of the distribution in their gross income. See secs. 61(a)(9), 662(a). Therefore, such amount, less one-third of the consideration paid for the contract, is includable in petitioners’ gross income. B. Section 6662(a) Substantial Understatement of Income Tax The last issue for decision is whether petitioners are liable for an accuracy-related penalty pursuant to section 6662(a) for the year in issue. As previously mentioned, section 7491(c) places on the Commissioner the burden of production with respect to a taxpayer’s liability for any penalty. Section 6662(a) imposes a penalty equal to 20 percent of any underpayment of tax that is due to a substantial understatement of income tax. See sec. 6662(a) and (b)(2). An individual substantially understates his or her income tax when the reported tax is understated by the greater of 10 percent of the tax required to be shown on the return or $5,000. Sec. 6662(d)(1)(A). Tax is not understated to the extent that the treatment of the item is (1) based on substantial authority, or (2) relevant facts are 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. Sec. 6662(d)(2)(B).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011