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understatement” exists if the understatement exceeds the greater
of (1) 10 percent of the tax required to be shown on the return
for a taxable year, or (2) $5,000. Sec. 6662(d)(1). The
understatement is reduced to the extent that the taxpayer (1) has
adequately disclosed facts affecting the tax treatment of an item
and there is a reasonable basis for such treatment, or (2) has
substantial authority for the tax treatment of an item. Sec.
6662(d)(2)(B).
Respondent determined, and we sustained, a tax deficiency of
$10,286. Petitioners conceded that they earned the income
advanced in the notice of deficiency, and petitioners did not
present any evidence indicating reasonable cause or substantial
authority for not reporting the income. See secs. 6662, 6664.
We sustain respondent’s penalty determination.
B. Section 6673
Under section 6673, this Court may require a taxpayer to pay
a penalty not to exceed $25,000 if the taxpayer takes a frivolous
position in the proceeding or institutes the proceeding primarily
for delay. A position maintained by the taxpayer is “frivolous”
where it is “contrary to established law and unsupported by a
reasoned, colorable argument for change in the law.” Coleman v.
Commissioner, 791 F.2d 68, 71 (7th Cir. 1986).
Petitioners’ protester rhetoric is manifestly frivolous and
groundless. They have wasted the time and resources of this
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Last modified: May 25, 2011