-2-
accuracy-related penalty. For 2000, respondent determined an
$11,159 deficiency and determined that petitioners were liable
for a $2,231 accuracy-related penalty. For 2001, respondent
determined a $7,605 deficiency and determined that petitioners
were liable for a $1,521 accuracy-related penalty. For 2002,
respondent determined an $11,413 deficiency and determined that
petitioners were liable for a $2,282 accuracy-related penalty.
After concessions, there are three issues for decision. The
first issue is whether petitioners engaged in their lemon farming
activity for profit. We hold they did not.2
The second issue is whether petitioners are liable for taxes
on interest and capital gains they admit they earned during the
years at issue but which were erroneously omitted on the Form
4549A, Income Tax Examination Changes, petitioners signed. We
hold petitioners are liable for the taxes on the interest and
capital gains.
The third issue is whether petitioners are liable for the
accuracy-related penalty. We hold they are liable for the
accuracy-related penalty except with respect to the portion of
the understatement attributable to the lemon farming activity.
2If we had found petitioners engaged in their lemon farming
activity for profit, we would have then been asked to consider
whether petitioners should have capitalized, rather than
deducted, their expenses relating to their lemon farming
activity. Because of our holding on the for profit issue, we
need not address the capitalization issue under sec. 263A.
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