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because any underpayment was attributable to a substantial
understatement of tax.
No partner of DIP contested the FPAA timely; i.e., by March
13, 2004, 150 days after its issuance. As a result, respondent
assessed the tax and penalties resulting from the disallowance of
the short-term capital loss and the interest expense.
Petitioners’ share of the tax, $19,466, was assessed on November
29, 2004, and their share of the accuracy-related penalties,
$3,893.20, was assessed on February 21, 2005. Respondent did not
assess any tax or penalty attributable to DII’s sale of the
distributed stock but issued the affected items notice of
deficiency as a predicate to assessing these amounts.
On March 10, 2005, respondent issued to petitioners the
affected items notice of deficiency for 1999. In that notice,
respondent determined the following three adjustments to income:
(1) The reported long-term capital loss was disallowed and the
amount realized of $1,143 was a gain given respondent’s
determination in the FPAA that the basis of the property
distributed by DIP was zero; (2) the $210,680 share of expenses
was disallowed; and (3) petitioners’ computational itemized
deductions were adjusted accordingly. Respondent also determined
in the affected items notice of deficiency the same set of
alternative penalties under section 6662 that the FPAA stated
were applicable.
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Last modified: November 10, 2007