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petitioner’s correct bases are zero, then the bases claimed on
his returns are considered to be 400 percent or more of the
correct amount, and are thus gross valuation misstatements. See
sec. 1.6662-5(g), Income Tax Regs.; see also Zirker v.
Commissioner, supra at 978-979.
Petitioner failed to meet his burden of proving that his
reported bases were not gross valuation misstatements. We hold
that petitioner’s underpayments of tax resulting from the
disallowance of the cost basis and depreciation deductions were
attributable to gross valuation misstatements. Unless the total
of the underpayments attributable to gross valuation misstatments
is less than $5,000, or petitioner had reasonable cause for the
underpayments, petitioner will be liable for 40-percent penalties
under section 6662(h) on the underpayments of tax attributable to
the items described in this paragraph.8
D. Section 6662(b)(1): Negligence or Disregard of Rules or
Regulations
Under section 6662(a) and (b)(1), a taxpayer may be liable
for a 20-percent penalty on an underpayment of tax which is
attributable to negligence or disregard of rules or regulations.
“Negligence” includes any failure to make a reasonable attempt to
8 As part of the Rule 155 computations, the parties shall
determine whether the total of petitioner’s underpayments
discussed in this paragraph exceeds $5,000. If the parties
determine that the total does not exceed $5,000, then those
underpayments will instead be subject to the 20-percent penalty
under sec. 6662(b)(1), as discussed infra.
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