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ultimately concluded that petitioner and Hood each received
$350,000.
Petitioners filed joint Federal income tax returns relating
to 1994 through 1997, but failed to include income payments
relating to rent and supplies from the charities. In 1999,
petitioners filed amended returns relating to 1994 through 1997
to reflect the receipt of such income.
On April 7, 2003, respondent issued petitioners a notice of
deficiency and determined deficiencies and penalties relating to
1994 through 1997 as follows:
Year Deficiency Section 6663(a) penalty
1994 $38,853 $29,140
1995 35,639 29,289
1996 22,047 21,020
1997 25,863 19,397
Respondent based his determinations on Hood’s assertions,
information received from various members of the respective
charities, and Agent Gannaway’s reconstruction of petitioners’
income.
Petitioners resided in Kingsport, Tennessee, at the time
they filed their petition with the Court.
OPINION
In order for petitioners to be liable for the fraud penalty,
an underpayment must exist. Parks v. Commissioner, 94 T.C. 654,
660-661 (1990). Respondent determined, pursuant to Agent
Gannaway’s report, that petitioners failed to report income
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