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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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