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greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6662(d)(1)(A). Petitioner’s
understatement does amount to more than $5,000; however, she
qualifies for a reduction of the understatement. Sec.
6662(d)(1)(B). Section 6662(d) provides for a reduction of the
understatement if the taxpayer supplied the relevant facts
affecting the tax treatment on the return and if there was a
reasonable basis for the tax treatment. Sec. 6662(d)(2)(B)(ii).
As previously discussed, petitioner attached adequate records to
her 2001 income tax return, and she had a reasonable basis for
believing she qualified as a professional gambler simply by
filing a Schedule C. Therefore, petitioner’s understatement for
purposes of determining whether it amounts to a “substantial
understatement of income tax” is reduced to zero. Sec.
6662(d)(1)(A). Petitioner is not liable for the section 6662(a)
penalty.4
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.
4 At trial, respondent agreed that, if the Court held
that petitioner was not a professional gambler, she could deduct
her gambling expenses as itemized deductions. In addition,
respondent conceded that petitioner was also entitled to itemized
deductions of $200, $458, and $1,376, respectively, for
charitable contributions, taxes, and interest.
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Last modified: May 25, 2011