Melvin D. Lee - Page 12

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          respondent contends.  Even though the loan first became                     
          delinquent in 1994 and even though petitioner in 1995 began to              
          lose hope that it would eventually be repaid, petitioner’s                  
          continued collection efforts after 1995 and into 1997 indicate              
          that the loan did not become worthless in 1995 or 1996.  The                
          length of time in which the loan was in default, in conjunction             
          with Dejanu’s desperate financial condition indicate that this              
          loan became worthless in 1997, not in 1995.                                 

          Accuracy-Related Penalty                                                    
               Under section 6662, a 20-percent accuracy-related penalty is           
          to be added to that portion of an underpayment of tax                       
          attributable to, among other things, a substantial understatement           
          of income tax.3  Sec. 6662(a) and (b)(2).                                   
               A substantial understatement of income tax is defined as a             
          tax understatement constituting the greater of 10 percent of the            
          tax required to be shown on a Federal income tax return or                  
          $5,000. Sec. 6662(d)(1)(A).  An understatement of tax for                   
          purposes of determining the accuracy-related penalty may be                 
          reduced by that portion of the understatement attributable to               

               3Respondent also argues that petitioner is liable for the              
          accuracy-related penalty for negligence or disregard of rules and           
          regulations under sec. 6662(b)(1).  We do not address whether               
          petitioner is liable for the accuracy-related penalty under                 
          respondent’s alternative theory.                                            

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