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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).
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Last modified: May 25, 2011