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The IRS determined that the Roses had a $200,000 basis in
their SLPC interest as of the end of 1994 and had no basis in
their SLPC interest as of the end of 1995. Consequently, the IRS
determined that the Roses could deduct $200,000 of SLPC’s losses
in 1994 and none of SLPC’s losses in 1995. The IRS increased the
Roses’ taxable income by $255,151 for 1994 and by $322,973 for
1995.
Imposition of Accuracy-Related Penalties by the IRS
The Roses signed their joint income tax returns for 1990,
1991, 1992, and 1993 on October 12, 1991, October 14, 1992,
October 15, 1993, and October 14, 1994, respectively. There was
no paid preparer’s information listed on any of these returns.
There were no Forms 8275, Disclosure Statement, attached to these
returns.
The IRS determined accuracy-related penalties under section
6662(a) with respect to the Roses for 1990, 1991, 1992, and 1993.
The accuracy-related penalties were determined to be due to
substantial understatements of income tax by the Roses for those
years. The IRS determined that all or part of the underpayments
of tax for those years was attributable to non-tax-shelter items
(1) for which there was no substantial authority or (2) that were
not adequately disclosed in the returns or in statements attached
to the returns. Furthermore, the IRS determined that it had not
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