George B.N. Ayittey - Page 7

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          Section 6662--Penalty                                                       
               Section 6662(a) provides a penalty in an amount equal to 20            
          percent of the portion of any underpayment attributable to, among           
          other things, “Any substantial understatement of income tax”.               
          Sec. 6662(b)(2).  A substantial understatement of income tax                
          exists “if the amount of the understatement for the taxable year            
          exceeds the greater of--(i) 10 percent of the tax required to be            
          shown on the return for the taxable year, or (ii) $5,000.”  Sec.            
          6662(d)(1)(A).  For purposes of section 6662(a), an                         
          understatement may be reduced if there is “substantial authority”           
          for the position taken, or if the facts were adequately disclosed           
          in the return and there was a “reasonable basis” for the position           
          taken.  Sec. 6662(d)(2)(B).  Further, no penalty will be imposed            
          if there was a reasonable cause for the understatement and the              
          taxpayer acted in good faith.  Sec. 6664(c).  There is no                   
          substantial authority for the position taken here.  The facts               
          concerning the unreported items of income that petitioner                   
          conceded, supra note 2, were obviously not disclosed and are not            
          subject to the section 6662(d)(2)(B) exception from the penalty.            
          While petitioner did disclose the fact that there was a casualty            
          loss deduction, we cannot say there was a reasonable ground for             
          the amount of the deduction claimed as a loss.  Petitioner made             
          no attempt to ascertain the correct tax treatment of the items              
          composing the casualty loss deduction claimed.  A “reasonable”              
          basis or reasonable cause cannot be transmuted from intentional             




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