§6653 — Failure to pay stamp tax

6We note that this case is distinguishable from Kantor v. Commissioner, 998 F .2d 1514 (9th Cir . 1993), affg . in part and revg . in part T .C . Memo . 1990-380, in which the Court of Appeals for the Ninth Circuit reversed this Court's affirmance of the imposition of a sec. 6653(a) addition to tax on the basis that the experience and involvement of the general partner and the lack of warning signs could reasonably have led investors to believe that they were entitled to deductions in light of t

7481(c) proceeding is not properly before the Court at this time, and we express no opinion on the point.

We disagree with petitioner's position.

-4- [*4] On October 30, 2006, the bankruptcy court entered an order on remand determining, in part, that: (1) petitioners were liable for income tax of$90,836.94 and an addition to tax pursuant to section 6653(a) of$3,010 for the year 1988; (2) petitioners were liable for income tax of$46,795 and a penalty pursuant to section 6662 of$9,359 for the year 1989; (3) the notice ofdeficiency for the years 1988 and 1989 was timely and proper.

-4- [*4] On October 30, 2006, the bankruptcy court entered an order on remand determining, in part, that: (1) petitioners were liable for income tax of$90,836.94 and an addition to tax pursuant to section 6653(a) of$3,010 for the year 1988; (2) petitioners were liable for income tax of$46,795 and a penalty pursuant to section 6662 of$9,359 for the year 1989; (3) the notice ofdeficiency for the years 1988 and 1989 was timely and proper.

If so, the periods of limitations for assessing tax remain open and petitioner is liable for fraud penalties pursuant to section 6653(b).

We hold that it does to the extent stated hereiù; (2) whether petitioners·omitted income ;of $5,668, $42,212, $107,089, $153,670, and $153,351, for 1984 through 1988, respectively.

We hold that it does to the extent stated hereiù; (2) whether petitioners·omitted income ;of $5,668, $42,212, $107,089, $153,670, and $153,351, for 1984 through 1988, respectively.

We hold that it was not .

We hold that petitioner is liable for such additions.

We hold that petitioner is liable for such additions.

The only issue for decision is whether petitioners are liable for the addition to tax for negligence pursuant to section 6653(a)(2) for 1982 in the amount of 50 percent of the interest due on the underlying deficiency of $6,479,2 which respondent computed in connection with the disallowance of research and development expenditures deducted in 1982 by Jojoba Research Partners, Hawaii, a limited partnership.

dent is obligated to offer petitioners terms of settlement regarding their investment in Jojoba Research Partners, Hawaii, a limited partnership (Jojoba), consistent with terms offered to other limited partners in Jojoba, and 2) whether petitioners are liable for the additions to tax for negligence pursuant to section 6653(a)(1) and (2) for the taxable years 1982, 1983, and 1985 and pursuant to section 6653(a)(1)(A) and (B) for the taxable year 1986.

dent is obligated to offer petitioners terms of settlement regarding their investment in Jojoba Research Partners, Hawaii, a limited partnership (Jojoba), consistent with terms offered to other limited partners in Jojoba, and 2) whether petitioners are liable for the additions to tax for negligence pursuant to section 6653(a)(1) and (2) for the taxable years 1982, 1983, and 1985 and pursuant to section 6653(a)(1)(A) and (B) for the taxable year 1986.

As noted, in the notice of deficiency issued on July 17, 1998, respondent determined that petitioners are liable for additions to tax for negligence pursuant to section 6653(a)(1) and (2) and for a substantial understatement addition to tax pursuant to section 6661.

A joint notice of deficiency was issued by respondent to petitioners on April 12, 1985, determining a tax deficiency of $21,711 and additions to tax pursuant to section 6653(a)(1) and (2).

On September 11, 1992, respondent issued a notice of deficiency to petitioner for the year 1984 in which respondent determined a deficiency in the amount of $4,096 and an addition to tax pursuant to section 6653(b) of $2,048.

We hold she may not.

~ 4 - decision in this case are, with respect to petitioner alone: (1) Whether petitioner is liable for the section 6653 addition to tax for negligence in each year in issue; (2) whether petitioner is liable for the section 6659 addition to tax for valuation overstatements in each year; (3) whether petitioner is liable for the increased rate of interest under section 6621(c) that is applied with respect to tax motivated transactions; and (4) whether peti

However, 55“[T]he question is whether the issue under section 6653(b) is ‘identical in all respects’ to that decided under section 7206(1).” Wright v.

Additions to Tax Under Section 6653 (a)(1) and (2 ) Section 6653 (a)(1) and ( 2), as in effect in 1983 and 1985, imposes additions to tax if any part of any underpayment of tax is due to negligence or disregard of rules and regulations .' For the purposes of this statute, negligence is defined as a "`lack of due care or failure to do what a reasonable and ordinarily prud

nnection, we note that, in support of their position in this case, petitioners rely on Vandeyacht v. Commis- sioner, T.C. Memo. 1994-148. In that case, we held, inter alia, that the taxpayers there involved were not liable for additions to tax under sec. 6653(a)(1) of the Code in effect for 1983, 1984, and 1985. We find Vandeyacht to be distinguishable from the instant case and petitioners’ reliance on that case to be misplaced. The taxpayers in Vandeyacht hired a bookkeeper and an accountant to

f Appeals for the Tenth Circuit held that the District Court did not abuse its discretion in instructing the jury that reasonable, good- faith reliance on the advice of a professional adviser constitutes a defense to negligence within the meaning of section 6653. This holding served to uphold the jury’s verdict in favor of the taxpayers on the issue of negligence. - 47 - In Thompson v. United States, supra, the Government relied heavily on the unpublished opinion of the Court of Appeals for the

Appeals for the Tenth Circuit held that the District Court did not abuse its discretion in instructing the jury that reasonable, good- faith reliance on the advice of a professional adviser constitutes a defense to negligence within the meaning of section 6653. This holding served to uphold the jury's verdict in favor of the taxpayers on the issue of negligence. In Thompson v. United States, supra, the Government relied heavily on the unpublished opinion of the Court of Appeals for the Tenth Ci

Appeals for the Tenth Circuit held that the District Court did not abuse its discretion in instructing the jury that reasonable, good- faith reliance on the advice of a professional adviser constitutes a defense to negligence within the meaning of section 6653. This holding served to uphold the jury's verdict in favor of the taxpayers on the issue of negligence. . In Thompson v. United States, supra, the Government relied heavily on the unpublished opinion of the Court of Appeals for the Tenth

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax.is under sec. 6653(a). For the years

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

o tax,3 penalties, and increased interest, as follows: Investment Research Associates, Ltd., and Subsidiaries Docket No. 43966-85: Addition to Tax Year Deficiency Sec. 6659(a) 1979 $18,791 $5,637 Docket No. 45273-86: Additions to Tax Year Deficiency Sec. 6653 Sec. 6659(a) Sec. 6661 1982 $174,225 $8,711 $49,154 $1,038 3 With respect to the additions to tax under sec. 6653, as to all of the cases before the Court, for the years 1979 and 1980, the addition to tax is under sec. 6653(a). For the year

In Robinson, this Court sustained respondent's disallowance of various expenses for failure to comply with section 274 and the accompanying regulations but, nonetheless, held that the taxpayer was not liable for the addition to tax for negligence under -- 77 -- section 6653(a), the predecessor to section 6662(a).

For purposes of section 6653, the term "underpayment" is defined in section 6653(c)(1) for income tax as: a deficiency as defined in * * * [section 6211] (except that, for this purpose, the tax shown on a return referred to in section 6211(a)(1)(A) shall be taken into account only if such return was filed on or before the last day prescribed for the filing of such

Section 6653(a)(2) applies "to the portion of * * *[an] underpayment described in paragraph (1)" of section 6653, which in turn refers to the definition of the term "underpayment" provided in subsection (c)(1) of section 6653.

ings of fact that the underpayments of tax by petitioners and by the corporation "were due to negligence and/or intentional disregard of rules and regulations." Additionally, they make no argument on brief concerning the additions to tax pursuant to section 6653. Accordingly, we consider petitioners and the corporation to have conceded the additions to tax pursuant to section 6653. Petitioners and the corporation argue that, to the extent that the threshold requirements of section 6661 are not m

The Court of Appeals for the Seventh Circuit said: - 18 - fraud under section 6653 “is intentional wrongdoing on the part of the taxpayer to avoid a tax known to be owing.” Akland v.

- 4 - additions to tax under section 6653;2 (3) the taxpayers grossly overvalued the subject master recording and were liable for the addition to tax under section 6659 due to a valuation overstatement; (4) the taxpayers were liable for the increased rate of interest under section 6621(c) due to an underpayment of tax in excess of $1,000 attributable to one or more enumerated

For purposes of section 6662, unlike section 6653, the amount shown on a late return is not treated as an underpayment.

Petitioner notes that repealed section 6653, which previously had imposed the fraud penalty, defined an underpayment with reference to a deficiency as defined in section 6211.

For the reasons stated above, we sustain respondent's determination of the additions to tax under section 6653 (a)(1) and (2) for negligence or intentional disregard of rules or regulations and the additions to tax under section 6661(a) for substantial understatement of income tax.

Additions to Tax Under Section 6653(a)(1) and (2) ` Section 6653 (a) (11) .

respondent filed a response to Kanter’s objection to the STJ report. -19- III. Notices of Deficiency Respondent issued notices of deficiency to petitioners as summarized below: Burton W. and Naomi R. Kanter Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6659 Sec. 6661 Sec. 6662 1978 $476,999.00 -- -- -- -- 1979 183,909.37 $9,190.47 -- -- -- 1980 454,396.00 22,720.00 -- -- -- 1981 340,578.00 17,029.00 $42,682 -- -- 1982 2,086,913.00 104,346.00 -- $208,691.00 -- 1983 1,150,652.00 57,532.6

respondent filed a response to Kanter’s objection to the STJ report. -19- III. Notices of Deficiency Respondent issued notices of deficiency to petitioners as summarized below: Burton W. and Naomi R. Kanter Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6659 Sec. 6661 Sec. 6662 1978 $476,999.00 -- -- -- -- 1979 183,909.37 $9,190.47 -- -- -- 1980 454,396.00 22,720.00 -- -- -- 1981 340,578.00 17,029.00 $42,682 -- -- 1982 2,086,913.00 104,346.00 -- $208,691.00 -- 1983 1,150,652.00 57,532.6

respondent filed a response to Kanter’s objection to the STJ report. -19- III. Notices of Deficiency Respondent issued notices of deficiency to petitioners as summarized below: Burton W. and Naomi R. Kanter Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6659 Sec. 6661 Sec. 6662 1978 $476,999.00 -- -- -- -- 1979 183,909.37 $9,190.47 -- -- -- 1980 454,396.00 22,720.00 -- -- -- 1981 340,578.00 17,029.00 $42,682 -- -- 1982 2,086,913.00 104,346.00 -- $208,691.00 -- 1983 1,150,652.00 57,532.6

Accordingly, the additions to tax under section 6653 are sustained.

respondent filed a response to Kanter’s objection to the STJ report. -19- III. Notices of Deficiency Respondent issued notices of deficiency to petitioners as summarized below: Burton W. and Naomi R. Kanter Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6659 Sec. 6661 Sec. 6662 1978 $476,999.00 -- -- -- -- 1979 183,909.37 $9,190.47 -- -- -- 1980 454,396.00 22,720.00 -- -- -- 1981 340,578.00 17,029.00 $42,682 -- -- 1982 2,086,913.00 104,346.00 -- $208,691.00 -- 1983 1,150,652.00 57,532.6

respondent filed a response to Kanter’s objection to the STJ report. -19- III. Notices of Deficiency Respondent issued notices of deficiency to petitioners as summarized below: Burton W. and Naomi R. Kanter Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6659 Sec. 6661 Sec. 6662 1978 $476,999.00 -- -- -- -- 1979 183,909.37 $9,190.47 -- -- -- 1980 454,396.00 22,720.00 -- -- -- 1981 340,578.00 17,029.00 $42,682 -- -- 1982 2,086,913.00 104,346.00 -- $208,691.00 -- 1983 1,150,652.00 57,532.6

In deciding whether a failure to file is fraudulent under section 6651(f), we consider the same elements that are considered in imposing the addition to tax for fraud under former section 6653(b) and present section 6663.

6). In Kotmair, the Commissioner determined that a self-employed taxpayer, who was convicted of willfully failing to file Federal income tax returns and did not pay estimated taxes or maintain adequate books and records, committed fraud, pursuant to section 6653(b). The Court held that the Commissioner had not established that the taxpayer had the requisite intent to evade tax because “There was no evidence of any falsification of books or records, no evidence of any concealment or misleading”.

1; 20Petitioner relies on Thompson v. United States, 223 F.3d 1206 (10th Cir. 2000), to support an argument that a trier of fact is obligated to accept a taxpayer’s reliance on professional advice as a defense to the negligence addition to tax under sec. 6653. However, Thompson does not support petitioner’s argument. In Thompson, the Court of Appeals for the Tenth Circuit upheld a jury instruction that reasonable, good-faith reliance on a professional adviser constitutes a defense to the neglige

Negligence Addition to Tax Under Section 6653 Section 6653(a), applicable to petitioner’s 1987 and 1988 taxable years, authorizes the imposition of an addition to tax for negligence.

Hamilton Is Liable for the Fraud Addition to Tax Under Section 6653 Section 6653(b)(1) provides that if any part of a taxpayer’s underpayment is due to fraud, an addition to tax equal to 75 percent of the underpayment will be imposed.

Negligence Addition to Tax Under Section 6653 Section 6653(a), applicable to petitioner’s 1987 and 1988 taxable years, authorizes the imposition of an addition to tax for negligence.

1,633 1988 7,620 n/a 381 2,215 1,905 Accuracy-Related Penalties Sec. Sec. Sec. Sec. Year Deficiency 6662(c)3 6662(h)3 6662(d)3 6662(e)3 1989 $9,788 $1,958 $1,958 $1,958 $3,915 1In addition, respondent determined that petitioners are liable for the sec. 6653 addition to tax equal to 50 percent of the interest due on the deficiency in 1984, 1985, and 1987. 2Respondent conceded this addition to tax at trial. 3Sec. 6662(c), (d), (e), and (h) refers to the sec. 6662(a) accuracy-related penalty for n

1,633 1988 7,620 n/a 381 2,215 1,905 Accuracy-Related Penalties Sec. Sec. Sec. Sec. Year Deficiency 6662(c)3 6662(h)3 6662(d)3 6662(e)3 1989 $9,788 $1,958 $1,958 $1,958 $3,915 1In addition, respondent determined that petitioners are liable for the sec. 6653 addition to tax equal to 50 percent of the interest due on the deficiency in 1984, 1985, and 1987. 2Respondent conceded this addition to tax at trial. 3Sec. 6662(c), (d), (e), and (h) refers to the sec. 6662(a) accuracy-related penalty for n

Respondent also determined additions to tax pursuant to section 6653(a) and accuracy-related penalties pursuant to section 6662(a).

On September 30, 1997, respondent determined deficiencies relating to 1986 through 1989; additions to tax for fraud, pursuant to section 6653(b)1, relating to 1986, 1987, and 1988; and a fraud penalty, pursuant to section 6663, relating to 1989.

6653 6653 6653 6653 Sec. Year Deficiency (b)(1) (b)(2) (b)(1)(A) (b)(1)(B) 6654 1982 1$14,041 $7,021 2 –- –- $1,359 1983 3 15,785 4 –- 964 7,893 –- 1984 12,953 6,477 5 –- –- 814 1985 27,178 13,589 6 –- –- 1,558 1986 19,911 –- –- $14,933 7 963 1987 5,430 –- –- 4,073 8 294 1 This deficiency is subject to a prepayment credit adjustment of $73. 2

Respondent also determined additions to tax pursuant to section 6653(a) and accuracy-related penalties pursuant to section 6662(a).

Because petitioner has failed to prove that he was not negligent under sections 6653(a) and 6662 or that he is entitled to relief under section 6664(c), we reject petitioner’s arguments that he should be relieved of the section 6653 addition to tax and the section 6662 penalties in these consolidated cases.

Because petitioner has failed to prove that he was not negligent under sections 6653(a) and 6662 or that he is entitled to relief under section 6664(c), we reject petitioner’s arguments that he should be relieved of the section 6653 addition to tax and the section 6662 penalties in these consolidated cases.

6653 6653 6653 6653 Sec. Sec. Year 6651 (b)(1) (b)(2) (b)(1)(A) (b)(1)(B) 6654 6663 1983 $0 $3,702 1 $0 $0 $423 $0 1984 0 3,785 1 0 0 349 0 1985 (1,263) 3,445 1 0 0 263 0 1986 (1,313) 0 0 4,225 1 250 0 1987 (987) 0 0 2,962 1 214 0 1988 (970) 2,911 0 0 0 251 0 1989 (1,874) 0 0 0 0 509 5,621 1990 (1,844) 0 0 0 0 485 5,533 1991 (311) 0 0 0 0 34 5

However, in limited situations, the section 6653(a·) additions to tax may be avoided if the taxpayer shows good faith reliance on the advice of a competent and experienced accountant or attorney in the preparation of the tax return.

While a lack of any significant formal education beyond high school has been a factor in some cases where we have found that taxpayers were not negligent under section 6653, such cases are exceptions rather than the norm.

For 1983 through 1988, section 6653(c)(1) defines an “underpayment” for purposes of section 6653 as a “deficiency” defined by section 6211.

As relevant to this case, section 6653(c)(1) defines an "underpayment" for purposes of section 6653 as a "deficiency" defined under section 6211.

For 1983 through 1988, section 6653(c)(1) defines an “underpayment” for purposes of section 6653 as a “deficiency” defined by section 6211.

information to the preparer, they reasonably relied on the preparer’s advice, and the incorrect returns resulted from the preparer’s mistakes. See Weis v. Commissioner, 94 T.C. 473, 487 (1990) (dealing with the addition to tax for negligence under section 6653). Petitioners have failed to satisfy their burden of proof on this issue. Conclusion We have considered carefully all remaining arguments made by petitioners for a result contrary to that expressed herein, and, to the extent not discussed

Respondent also determined as to the entire - 2 - deficiency that petitioner was liable for the time sensitive addition to tax under section 6653(a)(2) and the increased rate of interest under section 6621(c).

With regard to additions to tax for negligence, the Court stated in pertinent part: a partner will be liable for the addition to tax for negligence pursuant to section 6653(a) if he has an underpayment of tax some part of which is due to negligence.

We hold that respondent has not shown that petitioner had actual knowledge of the amount of the item giving rise to a deficiency.4 Respondent also determined additions to tax for negligence under section 6653(a)(1)(A) and (B) and for delinquency under section 6651(a)(1).

With regard to additions to tax for negligence, the Court stated in pertinent part: - 18 - a partner will be liable for the addition to tax for negligence pursuant to section 6653(a) if he has an underpayment of tax some part of which is due to negligence.

1994-545 (“The definition of fraud for purposes of section 6653 is the same as the definition of fraud for the purpose of extending the period of limitations under section 6501(c).”), affd.

income tax as follows: Additions to Tax* Year Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6661 1983 $626,647 $313,324 ** $156,662 1985 25,003 77,268 ** 6,251 * Respondent did not determine any additions to tax with respect to Marie Biaggi under sec. 6653 (b)(1) and (2). ** 50% of the interest due on total deficiency. Unless otherwise noted, all section references are to the Internal Revenue Code of 1954 in effect for the years in issue, and all Rule references are to the Tax Court Rules of

information to the preparer, they reasonably relied on the preparer’s advice, and the incorrect returns resulted from the preparer’s mistakes. See Weis v. Commissioner, 94 T.C. 473, 487 (1990) (dealing with the addition to tax for negligence under section 6653). Petitioners have failed to satisfy their burden of proof on this issue. Conclusion We have considered carefully all remaining arguments made by petitioners for a result contrary to that expressed herein, and, to the extent not discussed

income resulting SERVED AUG 1 2 - 2 - from payments petitioner Jon L. Stolte¹ received under two disability policies. The resulting deficiencies in income tax, additions to tax, and penalties are as follows: Additions to Tax Penalty Year Deficiency Sec. 6653(a) Sec. 6661 Sec. 6662 1987 $12,472 $624 $3,118 1988 5,371 269 1,343 1989 6,274 $1,255 1990 6,263 1,253 After concessions by petitioners, the sole issue for decision is whether certain payments received by petitioner may be excluded from pet

whether participants in Merit's T-bond option, T-bill option, and stock forwards programs had a profit motive; (3) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for additions to tax pursuant to section 6653; (4) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for the 120-percent interest rate for tax- motivated transactions pursuant to section 6621(c); and (5) whether petitioners Maria Riv

n United States v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365 (9th Cir. 1980)); see also Betz v. Commissioner, 90 T.C. 816, 823 (1988). Respondent determined that Kersting program participants are liable for additions to tax for negligence under section 6653. For the taxable years 1981 through 1985, section 6653(a)(2) provides that the addition to tax for negligence includes a component equal to 50 percent of the interest due on the - 306 - deficiency. For the taxable years 1986 and 1987, th

n United States v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365 (9th Cir. 1980)); see also Betz v. Commissioner, 90 T.C. 816, 823 (1988). Respondent determined that Kersting program participants are liable for additions to tax for negligence under section 6653. For the taxable years 1981 through 1985, section 6653(a)(2) provides that the addition to tax for negligence includes a component equal to 50 percent of the interest due on the - 306 - deficiency. For the taxable years 1986 and 1987, th

whether participants in Merit's T-bond option, T-bill option, and stock forwards programs had a profit motive; (3) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for additions to tax pursuant to section 6653; (4) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for the 120-percent interest rate for tax- motivated transactions pursuant to section 6621(c); and (5) whether petitioners Maria Riv

whether participants in Merit's T-bond option, T-bill option, and stock forwards programs had a profit motive; (3) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for additions to tax pursuant to section 6653; (4) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for the 120-percent interest rate for tax- motivated transactions pursuant to section 6621(c); and (5) whether petitioners Maria Riv

n United States v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365 (9th Cir. 1980)); see also Betz v. Commissioner, 90 T.C. 816, 823 (1988). Respondent determined that Kersting program participants are liable for additions to tax for negligence under section 6653. For the taxable years 1981 through 1985, section 6653(a)(2) provides that the addition to tax for negligence includes a component equal to 50 percent of the interest due on the - 306 - deficiency. For the taxable years 1986 and 1987, th

n United States v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365 (9th Cir. 1980)); see also Betz v. Commissioner, 90 T.C. 816, 823 (1988). Respondent determined that Kersting program participants are liable for additions to tax for negligence under section 6653. For the taxable years 1981 through 1985, section 6653(a)(2) provides that the addition to tax for negligence includes a component equal to 50 percent of the interest due on the - 306 - deficiency. For the taxable years 1986 and 1987, th

n United States v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365 (9th Cir. 1980)); see also Betz v. Commissioner, 90 T.C. 816, 823 (1988). Respondent determined that Kersting program participants are liable for additions to tax for negligence under section 6653. For the taxable years 1981 through 1985, section 6653(a)(2) provides that the addition to tax for negligence includes a component equal to 50 percent of the interest due on the - 306 - deficiency. For the taxable years 1986 and 1987, th

Whether petitioners are liable for section 6653 additions to tax, and a section 6663 penalty, for fraud.

whether participants in Merit's T-bond option, T-bill option, and stock forwards programs had a profit motive; (3) whether participants in Merit's T-bond option, T-bill option, and stock forwards programs are liable for additions to tax pursuant to section 6653; (4) whether participants in Merit's T-bond option, T-bill option, and stock forwa::ds programs are liable for the 120-percent interest rate for tax- motivated transactions pursuant to section 6621(c) ; and (5) whether petitioners Maria

- 6 - Next, we consider whether petitioners are liable for a negligence addition under section 6653(a)(1) for 1988 and/or a penalty under section 6662(a) for 1989.

6653 6653 6653 6653 Sec. 6653 6653 6653 Year Deficiency (b)(1)(A) (b)(1)(B) (b)(1) (b)(2) 6661(a) (a)(1)(A) (a)(1) (a)(1)(B) 1985 $19,969 --- --- $17,334 1 $4,992 --- --- --- 1986 45,045 $34,567 2 --- --- 11,261 $346 --- 3 1987 13,068 9,474 4 --- --- 6,997 768 --- 5 1988 19,914 --- --- 20,425 --- 4,979 --- $9 --- - 2 - 1 50 percent of the sta

me tax and additions to tax under sections 6653(b)1 (fraud), 6654 (failure to pay estimated tax), and 6661 (substantial understatement of income tax) against petitioner Robert E. Iles2 as follows (amounts rounded to nearest dollar): Additions to Tax Sec. 6653 Sec. 6653 Year Deficiency Sec. 6653(b) (b)(1) (b)(2) Sec. 6654 Sec. 6661 1980 $103,197 $54,369 - - $6,221 - 1981 253,014 126,507 - - 19,387 - 1982 605,062 - $302,531 1 58,908 $151,266 1 50 percent of the interest due on the entire deficienc

Addition to Tax for Negligence Respondent determined that petitioners are subject to an addition to tax for negligence under section 6653 for the years in issue.

Year Deficiency 6651(a)(1) 6653(a)(1) 6661 1985 $18,688 $965 $1,245 $4,672 Respondent also determined that petitioners are liable for additions to tax of 50 percent of the interest due on the deficiency under section 6653(a)(2) for each year in issue.

Whether petitioner is liable under section 6653 for the negligence addition to tax.

In addition, respondent determined that, for each year, petitioners were liable for the additions to tax under section 6653 for negligence, section 6659 for valuation overstatement, and section 6621(c) for increased interest.

6653 provides, in relevant part, as follows: SEC. 6653. ADDITIONS TO TAX FOR NEGLIGENCE AND FRAUD. (a) Negligence.-- (1) In general.--If any part of any underpayment * * * is due to negligence or disregard of rules or regulations, there shall be added to the tax an amount equal to the sum of-- (A) 5 percent of the underpayment, and (B) an amou

substantial deviation from ordinary behavior that it could not be ascribed to an honest misunderstanding or simple carelessness. There is no inconsistency in the Court's also finding that petitioners were liable for the additions to tax pursuant to section 6653. Any part of an underpayment attributable to a position taken by the taxpayer in reasonable, bona fide reliance upon professional tax advice is not attributable to negligence. Ewing v. Commissioner, 91 T.C. 396, 423-424 (1988), affd. wit

Respondent determined additions to tax for negligence under section 6653(a)(1)(A) and (B) for 1987 and section - 17 - 6653(a)(1) for 1988.

The issue remaining for decision is whether petitioners are liable for the additions to tax for negligence under the relevant provisions of section 6653 for the years in issue.

substantial deviation from ordinary behavior that it could not be ascribed to an honest misunderstanding or simple carelessness. There is no inconsistency in the Court's also finding that petitioners were liable for the additions to tax pursuant to section 6653. Any part of an underpayment attributable to a position taken by the taxpayer in reasonable, bona fide reliance upon professional tax advice is not attributable to negligence. Ewing v. Commissioner, 91 T.C. 396, 423-424 (1988), affd. wit

Negligence under section 6653 is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the same circumstances.

8,178 --- --- --- 36,059 --- 1989 21,904 --- --- --- --- --- $16,428 1990 3,300 --- --- --- --- --- 2,475 1 50% of the interest due on $49,562 2 50% of the interest due on $132,166 3 50% of the interest due on $97,352 After concessions, the issues for decision are: (1) Whether petitioner is liable for additions to tax and penalties for fraud under section 6653(b) or section 6663 for any taxable year at issue.

(3) Whether petitioners are liable for (a) additions to tax for negligence under section 6653 for 1987 and 1988 and substantial understatement of income tax under section 6661 for 1987; and (b) the accuracy-related penalty under section 6662(a) for 1990 and 1991.

Negligence under section 6653 is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the same circumstances.

The issue remaining for decision is whether petitioners are liable for the additions to tax for negligence under the relevant provisions of section 6653 for the years in issue.

The settlement terms clearly included an agreement that respondent would not assert additions to tax under "IRC section 6653"; that is the only section under which the fraud additions could be imposed for the years in issue.

- 4 - its fiscal 1982) and, as to section 6653 (b)(2), in what amount.

6653 6653 6653 6653 6661 Year Deficiency (b)(1) (b)(1)(A) (b)(1)(B) (b)(2) (a) 1984 $814 $2,745 -- -- 50% of the $1,372 interest due on $5,211 1985 816 5,888 -- -- 50% of the 2,944 interest due on $11,215 1986 757 -- $9,662 50% of the -- 3,221 interest due on $12,865 1987 2,145 -- 6,779 50% of the -- 2,260 interest due on $8,997 Respondent det

pecially recognized), for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION PARR, Judge: Respondent determined deficiencies in, and additions to, petitioner's Federal income taxes as follows: - 2 - Additions to Tax Year Deficiency Sec. 6651(a)(1) Sec. 6653 1979 $25,292 $3,823 $1,745 1980 35,137 9,248 12,150 1On brief, respondent argues that pursuant to sec. 6653(a), petitioner is subject to a $1,150 addition to tax for 1980. However, in the notice of deficiency, respondent determined the sec.

AND OPINION COLVIN, Judge: Respondent determined that, for 1988, petitioner is liable for a deficiency in Federal income tax of $63,600 and additions to tax of $10,779 for failure to timely file under section 6651(a) and $3,281 for negligence under section 6653(a)(1). - 2 - After concessions,1 the issues for decision are: 1. Whether petitioner's transfer of $350,000 to Swirl, Inc. (Swirl), in October 1986 was a loan or a contribution to capital. We hold that it was a loan. 2. Whether, based on

Petitioners first argue that section 6653's extensive history of amendments suggests that the section is inherently flawed, and, as such, should not be applied against them.

6653 (b) 1980 $113,469 -- $64,650 1981 39,563 -- 28,150 1982 40,360 $10,090 25,125 1983 19,561 4,890 9,781 1984 19,286 4,822 9,643 1985 41,813 10,453 20,907 1986 21,143 5,286 12,907 After concessions, the issues for decision are: (1) Whether certain deposits to a foreign bank account constitute unreported income to petitioner. We hold that the

Consequently, we sustain respondent's determination of section 6653 additions to tax for INC and Holdings.

6653 for 1986 provides, in pertinent part, as follows: (continued...) - 144 - 35(...continued) SEC 6653. ADDITIONS TO TAX FOR NEGLIGENCE AND FRAUD. (a) Negligence.-- (1) In general.--If any part of any underpayment (as defined in subsection (c)) is due to negligence or disregard of rules or regulations, there shall be added to the tax an amou

le for an addition to tax under section 6651(a). We hold that he is. 3. Whether petitioner is liable for an addition to tax under section 6654(a). We hold that he is. 1 Respondent also determined that petitioner was liable for additions to tax under sec. 6653(a)(1) and (2), but these additions have been conceded by respondent. Petitioner initially disputed only the additions to tax and not the deficiency in tax. Later, in his amended petition, petitioner contested the deficiency as well as the a

Petitioners first argue that section 6653's extensive history of amendments suggests that the section is inherently flawed, and, as such, should not be applied against them.

Consequently, we sustain respondent's determination of section 6653 additions to tax for INC and Holdings.

A taxpayer may avoid liability for the additions to tax under the - 27 - provisions of section 6653 if he or she reasonably relied on competent professional advice.

In Ewing, the Tax Court declined to impose additions to tax under section 6653 where the taxpayers had "[relied] in good faith on the attorneys to formulate and implement" an arrangement.

pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent determined additions to petitioner's 1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the tax year in issue, and all Rule references are to the Tax Court Rules of Practice - 2 - 1984 income tax, pursuant to section 6653(a)(1) and (2), in the amounts of $200 and $2,756, respectively.

6653 6653 6653 6653 6653 6653 Sec. Year Deficiency (a)(1) (a)(1)(A) (a)(1)(B) (b)(1) (b)(1)(A) (b)(1)(B) 6661 1986 $65,075 --- $2,025 * --- $18,434 ** $16,269 1987 33,648 --- 453 * --- 18,448 ** 8,412 1988 24,644 $412 --- --- $12,296 --- --- 6,161 * 50 percent of the interest due on the portion of the underpayment due to negligence. ** 50 perc

We also hold petitioner liable for the additions to tax for negligence under section 6653 and substantial understatement under section 6661, computed on the reduced deficiency.

The addition to tax for negligence under section 6653 is correctly assessed in cases where claimed deductions are not supported by the facts.

We hold that Anthony Walters is liable for the section 6653 addition to tax for taxable years 1987 and 1988 and the section 6663 penalty for taxable year 1989; Linda Walters is not liable for such additions or penalty.

Accordingly, we find that petitioners are liable for an addition to tax for negligence under section 6653(a) for each of the taxable years in issue.

(3) Whether petitioner is liable for the addition to tax for negligence under section 6653 for the years at issue.

Under section 6653 "negligence" includes any negligent failure by the taxpayer to keep adequate books and records or to substantiate items properly. The term "disregard" includes any (cid:16)04car2eless, reckless, or intentional disregard of rules or regulations. We have found no authority to support petitioner's contentions. Petitioner, by not maintaini

judgment. See Rule 121(b). By statutory notice dated October 29, 1984, respondent determined a deficiency in the amount of $10,078.40 in petitioners’ Federal income tax for the year 1978, and an addition to tax in the amount of $7,586.10 pursuant to section 6653(b). Respondent’s determination reflects, inter alia, an item of unreported income in the amount of $23,334.50. Respondent seeks summary judgment on the issue of whether petitioner Leonard Ray Blanton is collaterally estopped from denying

ners in docket No. 17602-83. Lauren W. Gore and William C. Sabin, Jr., for the respondent. SIMPSON, Judge: The Commissioner determined the fol- lowing deficiencies in, and addition to, the petitioners' Federal income taxes for 1979: Addit..on to Tax Sec. 6653(b Petitioners Deficiency I.R.C. 1954 Sheldon and Anita Drobny $10,877 :45,439 Louis and Ruth Lifshitz 32,052 The issues for decision are: (1) Whether the petitioners are entitled to deductions for their proportiorate share of losses resulti

54, 60–61 (1976) (describing section 293 as the predecessor to section 6653 and noting that the legislative history reveals no congressional intent to substantively modify the fraud penalty in 1954).

Commissioner, 106 F.3d at 1454– 55, which concluded that the negligence penalty under section 6653 and the substantial understatement penalty under section 6661 were not penal but were instead remedial and related to the “government’s 9 Absent a stipulation to the contrary, this case is appealable to the U.S.

518, 534 (1995) (holding attorney specialized in tax to higher standard of care respecting section 6653(a)(1) addition to tax and section 6662(a) penalty); Leyshon v.

165, 187 (holding that the addition to tax under section 6653 is not punitive); Bell Cap.

audulent In determining whether a taxpayer had the requisite fraudulent intent for imposition of the section 6651(f) addition to tax, the Court considers the same elements that it considers in imposing the fraud penalty under section 6663 and former section 6653(b)(1). Clayton v. Commissioner, 102 T.C. at 653; see Granado v. Commissioner, 792 F.2d 91, 93-94 (7th Cir. 1986), aff’g T.C. Memo. 1985-237. Fraud is established by proving that a taxpayer intended to evade tax believed to be owing by co

equisite fraudulent intent. Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). In - 7 - [*7] determining whetherpetitioner's underpaymentwas due to fraud, we apply long-recognized "badges offraud" evolved from cases analyzing section 6663 or former section 6653(b)(1). See, e.g., Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992); see also Bradford v. Commissioner, 796 F.2d 303, 308 (9th Cir. 1986), af[g T.C. Memo. 1984-601. Badges offraud include (but are not limited to) a pattern ofunderstat

lish the requisite fraudulent intent. Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). In determining whether petitioners' underpayment was due to fraud, we apply long-recognized "badges offraud" evolved from cases analyzing section 6663 or former section 6653(b)(1). See, e.g., Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992). In Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg T.C. Memo. 1984-601, for example, those badges offraud were listed, with numerous citations

1996-257 (holding that 50% addition to tax for fraud imposed by former section 6653(b) did not violate the Eighth Amendment because it was remedial), M, 170 F.3d 1232 (9th Cir.

(CCH) 740, 746 (1990) (holding petitioners liable for an addition to tax under section 6653(a) for negligence because petitioners' conduct suggested a "pattern ofcarelessness" and because petitioners used methods for determining deductions that had "no basis in the law"), afG1, 980 F.2d 1198 (8th Cir.

mmissioner, T.C. Memo. 2014-101; Good v. Commissioner, T.C. Memo. 2012-323. In applying the addition to tax under section 6651(f), we consider the same elements, or long-recognized "badges offraud", discussed in cases applying section 6663 or former section 6653(b)(1). Clayton v. Commissioner, 102 T.C. at 647-653; see Niedringhaus v. Commissioner, 99 T.C. 202, 211-213 (1992). Fraud - 21 - [*21] may be proved by circumstantial evidence, and the taxpayer's entire course ofconduct may establish the

In applying section 6651(f) to determine whether petitioners' failure to file tax returns was fraudulent, we consider the same elements considered in cases involving former section 6653(b) and present section 6663.

04, 2005, 2006, and 2007. In order for that addition to tax to apply, we must consider essentially the same matters that are involved in determining whether a taxpayer is liable for the fraud penalty under section 6663 and its predecessor provision, section 6653(b). See Clayton v. Commissioner, 102 T.C. 632, 653 (1994). Consequently, as is required for purposes ofsection 6663, the Commissioner ofInternal Revenue (Commis- sioner) must prove by clear and convincing evidence for purposes ofsection

In applying section 6651(f) to determine whether petitioners' failure to file tax returns was fraudulent, we consider the same elements considered in cases involving former section 6653(b) and present section 6663.

In applying section 6651(f) to determine whether petitioner's failure to file tax returns was fraudulent, we consider the same elements considered in cases involving former section 6653(b) and present section 6663(a).

In applying section 6651(f) to determine whether petitioners' failure to file tax returns was fraudulent, we consider the same elements considered in cases involving former section 6653(b) and present section 6663.

In applying section 6651(f) to determine whether petitioners' failure to file tax returns was fraudulent, we consider the same elements considered in cases involving former section 6653(b) and present section 6663.

In applying section 6651(f) to determine whether petitioner's failure to file tax returns was fraudulent, we consider the same elements considered in - 10 - [*10] cases involving former section 6653(b) and present section 6663.

. Fraudulent Intent In determining whether a taxpayerhad the requisite fraudulent intent for imposition ofthe section 6651(f) addition to tax, we consider the same elements that we consider in imposing the fraud penalty under section 6663 and former section 6653(b)(1). Clayton v. Commissioner, 102 T.C. at 653; Mohamed v. 28Because sec. 6651(f) is keyed to subsec. (a)(1), a taxpayer cannot be liable for a subsec. (f) addition to tax ifthe failure to file is due to reasonable cause and not willful

In applying section 6651(f) to determine whetherpetitioner's failure to file tax returns was fraudulent, we consider the same elements considered in cases involving former section 6653(b) and present section 6663.

the delinquency offense (now, sec. 6651(f)) from the fraudulent underpayment offense (now, sec. 6663(a)), but it did not coordinate the two new provisions, so that the outcome under prior law does not in all cases persist. Under prior law (pre-OBRA sec. 6653), although a taxpayer could be subject to both the delinquency addition and either a negligence or fraud addition, see, e.g., Caparaso v. Commissioner, T.C. Memo. 1993-255, sec. 6653 did not allow a double counting for delinquency and for f

), aff'g in part, rev'g in part 74 T.C. 1160 (1980). In deciding whether a failure to file is fraudulent under section 6651(f), we consider the same elements that are considered in imposing the addition to tax for fraud under section 6663 and former section 6653(b). Clayton v. Commissioner, 102 T.C. 632, 653 (1994). Those elements are: (1) the existence ofan underpayment and (2) fraudulent intent with respect to some portion ofthe underpayment. See Petzoldt v. Commissioner, 92 T.C. 661, 698-699

The term "underpayment", which had been defined in section 6653 before the 1989 amendments, was defined in section 6664(a) after the amendments.

Specifically, section 6653 provided: SEC.

In deciding whether a failure to file is fraudulen't under section 6651(f), we consider the same elements that are considered in imposing the addition to tax for fraud under former section 6653(b) and present section 6663.

In deciding whether a failure to file is fraudulentunder section 6651(f), we consider the same elements that are considered in imposing the addition to tax for fraud under former section 6653(b) and present section 6663.

for the years at issue were fraudulent. In ascertaining whether petitioner's failure to file was fraudulent under section 6651(f), the Court considers the same elements that are considered in imposing the fraud penalty under section 6663 and former section 6653(b). Clayton v. Commissioner, 102 T.C. 632, 653 (1994). Those two elements offraud are: (1) the existence ofan underpayment, and (2) fraudulent intent with respect to some portion ofthe underpayment. See Petzoldt v. Commissioner, 92 T.C.

In determining whether petitioner's underpayment was due to fraud, we apply long-recognized "badges of fraud", discussed in cases applying section 6663 or former section 6653 (b) (1).

In view of our conclusion that petitioner's failure to file was fraudulent, we do not consider that alternative.) In applying the addition to tax under section 6651(f), we consider the same elements, or long-recognized "badges of fraud", discussed in cases applying section 6663 or former section 6653 (b) (1).

En'ergy Partners of an affected item requiring deficiency procedures--the addition to tax for negligence pursuant to section.6662(b) (1) (former section 6653(a))--is itself one that requires both factual findings and a legal determination that (i) the facts· are sufficient to establish negligent disregard for tax rules and regulations and (ii) that no exception or excuse applies.

The levy did not include the $2,636 in additional i come tax for the 1983 year and did not inc ude a $131.80 section 6653 (a) (1) 5- percent negligence penalty sfor underpaying her 1983 tax.6 Bang had already paid these amounts.

nly to a rate.. In Lincir v. Commissioner, supra, we recognižed that section 6621(d) is an interest rate provision. Lincir dealt with the interaction of section 6621(d) and the interest component of the addition to tax for negligence under repealed section 6653(a). The taxpayer argued that interest netting should apply to the interest calculated on the underpayment attributable to negligence. The Court held against the taxpayer finding that interest netting under section 6621(d) applies only to

Commissioner, supra at 184-185 (holding fraud penalty under section 6653 is remedial); Jove v.

ncome tax return timely is due to fraud. In ascertaining whether petitioner's failure to file was fraudulent under section 6651(f), the Court considers the same elements that are considered in imposing the fraud penalty under section 6663 and former section 6653 (b). Those two elements of fraud are: (1) The existence of an underpayment, and (2) fraudulent intent with respect to some portion of the underpayment. In a case involving fraud, the Commissioner bears the burden of establishing fraud by

for fraud under former section 6653(b) and present section 6663.

In view of our conclusion that petitioner's failure to file was fraudulent, we do not consider that alternative.) In applying the addition to tax under section 6651(f), we consider the same elements, or long-recognized "badges of fraud", discussed in cases applying section 6663 or former section 6653 (b) (1).

In applying the penalty-under section 6663, we consider the same elements, or long-recognized "badges of fraud", discussed in cases applying section 6651(f) and former section 6653 (b) (1).

In applying the penalty-under section 6663, we consider the same elements, or long-recognized "badges of fraud", discussed in cases applying section 6651(f) and former section 6653 (b) (1).

Energy Partners of an affected item requiring deficiency procedures — the addition to tax for negligence pursuant to section 6662(b)(1) (former section 6653(a)) — is itself one that requires both factual findings and also a legal determination that (i) the facts are sufficient to establish negligent disregard for tax rules and regulations and (ii) that no exception or excuse applies.

As the petitioners have noted, this Court has declined to sustain the addition to tax under section 6653(a) in cases in which the taxpayer relied in good faith on the advice of a tax expert.

only to a rate. In Lincir v. Commissioner, supra, we recognized that section 6621(d) is an interest rate provision. Lincir dealt with the interaction of section 6621(d) and the interest component of the addition to tax for negligence under repealed section 6653(a). The taxpayer argued that interest netting should apply to the interest calculated on the underpayment attributable to negligence. The Court held against the taxpayer, finding that interest netting under section 6621(d) applies only t

(Some of the foregoing cases address former section 6653, Additions to Tax for Negligence and Fraud, a precursor to the current accuracy-related and fraud penalties that was also subject to a reasonable-cause exception .

As the petitioners have .noted, this Court has declined to sustain the-addition to tax under section 6653(a) in cases in which the taxpayer relied in good faith on the advice of a tax expert .

Commissioner, supra at 652-653 (the Court considers the same elements to-determine the fraudulent failure to file addition under section 6651(f) as the Court did to determine- the fraud penalty under former section 6653 (b) (present section 6663)); Castillo v.

The first draft of the proposed settlement offer explaine d that the Tax Court had issued Dixon II disallowing the interes t deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section .6661,_, and finding that the increased interest rate under section 1'6621(c) applied .

. In ascertaining whether petitioner's failure to file was fraudulent pursuant to section 6651(f), the Court considers the same elements that are considered in imposing the fraud penalty under section 6663 and the additions to tax pursuant to former section 6653(b) . Clayton v . Commissioner, 102 T .C . 632, 653 (1994) ; Rossman v . Commissioner , T .C . Memo . 2006-128 . The Commissioner has the burden of production with respect to the additions to tax and the burden of proof with respect to fr

In Pasternak, the Court of Appeals for the Sixth Circuit rejected a taxpayer's argument that negligence penalties under section 6653 should not be imposed because the taxpayer relied "on the advice of `financial advisors, industry experts, and professionals"' .

First, in Dixon III we held that Kersting project taxpayers who had not had final decisions entered in their cases would be relieved of their liabilities for the interest component of the addition to tax for negligence under former section 6653(a) and for the increased rate of interest provided by former section 6621(c) .

Greer exceed $1 .2 million at 10 - this time, largely because of the interest for all 4 years and the 50-percent additional interest under section 6653(a)(2) for 1981-and 1982 .

Although we have upheld the imposition of section 6653 additions to tax in all jojoba partnership-related cases to come before us,-investment in a jojoba partnership does not make a taxpayer strictly liable for negligence penalties.

On April 10, 2006, respondent sent petitioner a notice of' 11 deficiency determining additions to tax for : negligence under section 6653(a)(1) for 1983 for affected items related to the partnership adjustment .

ision in Dixon II but amounted to harmless error . However, we imposed sanctions against respondent by relieving test-case and non-test- case petitioners of liability for (1) the interest component o f the addition to tax for negligence under former section 6653(a), . and (2) the increased interest attributable to the higher rate prescribed in former section 6621(c) . See Dixon III . On April 1, 1999, 2 days after issuance of our Dixon III opinion, we referred: the (cid:127)°misconduct of McWade

Petitioner's offer in effect was that he'would pay the underlying liability and the statutory interest on the deficiency but would not have to pay the negligence additions to tax under section 6653 and tax-motivated interest pursuant to section 6621 .

Additions to Tax Under Section 6653(a) Section 6653 ( a) imposes additions tl,o tax if any part of any underpayment of tax is due to negligence or disregard of rules and regulations ." For the purposes of this statute, negligence is defined as a "`lack of due care or failure to do what a .: reasonable.

The first draft of the proposed settlement offer explaine d that the Tax Court had issued Dixon II disallowing the interes t deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section .6661,_, and finding that the increased interest rate under section 1'6621(c) applied .

The first draft of the proposed settlement offer explaine d that the Tax Court had issued Dixon II disallowing the interes t deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section .6661,_, and finding that the increased interest rate under section 1'6621(c) applied .

The first draft of the proposed settlement offer explaine d that the Tax Court had issued Dixon II disallowing the interes t deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section .6661,_, and finding that the increased interest rate under section 1'6621(c) applied .

First, in Dixon ill we held that Kersting project taxpayers who had not had final decisions entered in their cases would be relieved of their liabilities for the interest component of the addition to tax for negligence under former section 6653(a) and for the increased rate of interest provided by former section 6621(c).

In Pasternak, the Court of Appeals for the Sixth Circuit rejected a taxpayer’s argument that negligence penalties under section 6653 should not be imposed because the taxpayer relied “on the advice of ‘financial advisors, industry experts, and professionals’”.

MEMORANDUM FINDINGS OF FACT AND OPINION HAINES, Judge : Respondent determined that petitioners are liable for additions to tax for negligence under section 6653 (a) (1)1 of $169 and $175 for 1983 and 1985, respectively, an d 'Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years at issue .

tained. Barrow makes no additional showing here, so we must also uphold the Commissioner's adjustment of this item. III. Fraud Penalty We've held that Barrow is collaterally estopped from denying fraud for 1985, 1987, and 1988 for purposes of former section 6653 (b). This makes for an interesting question: to what extent can we determine the portion of the deficiency subject to this penalty for these years? In 1985, section 6653 (b) read as follows: SEC 6653 (b) . Fraud -- (1) In general.--If an

The Dombrowski draft explained that the Tax Court had issued its Dixon II opinion disallowing the interest deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section 6661, and finding that the increased interest rate under section 6621(c) applied.

Section 6653(a) Section 6653 (a)(1) imposes an addition to tax equal to 5 percent of the underpayment of tax if "any part of any underpayment * * * is due to negligence or intentional disregard of rules or regulations " .

Section 6653 Additions to Tax Respondent determined that petitioner is liable for additions to tax for the tax year 1987 for negligence (1) of $16,707 under section 6653(a)(1)(A), and (2) 50 percent of the interest due on the portion of the underpayment attributable to negligence ($334,707) under section 6653(a)(1)(B) . Respondent also determined a

Commissioner , supra at 888- 889, we held that the taxpayers could not avoid the section 6653(a) addition to tax for negligence by relying on the advice of their investment counselors where the taxpayers "had to know that the investment was simply too good to be valid taxwise .

The Dombrowski draft explained that the Tax Court had issued its Dixon II opinion disallowing the interest deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section 6661, and finding that the increased interest rate under section 6621(c) applied.

The Dombrowski draft explained that the Tax Court had issued its Dixon II opinion disallowing the interest deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section 6661, and finding that the increased interest rate under section 6621(c) applied.

The Dombrowski draft explained that the Tax Court had issued its Dixon II opinion disallowing the interest deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section 6661, and finding that the increased interest rate under section 6621(c) applied.

The Dombrowski draft explained that the Tax Court had issued its Dixon II opinion disallowing the interest deductions, imposing additions to tax for negligence under section 6653 and substantial understatement of tax under section 6661, and finding that the increased interest rate under section 6621(c) applied.

§§6653(a)(1), 6653(a)(2), 6659, and 6661, and the additional interest under I.R.C. §6621(c), formerly §6621(d), which were all mentioned in the Notice of Final Partnership Administrative Adjustment * * * are affected items as defined in I.R.C. §6231(a)(5) that require factual determinations to be made at the partner level, and are not within the Cou

1993-184, we sustained an addition to - 16 - tax for fraud under section 6653(b)(1) on account of the taxpayer’s failure to report income from sales of heroin notwithstanding that the Commissioner, who bore the burden of proof because of the claim of fraud, had failed to show that the taxpayer’s costs of goods sold and deductible expenses did not exceed his receipts from those sales.

ing evidence. Sec. 7454(a); Rule 142(b); Clayton v. Commissioner, 102 T.C. 632, 646, 652-653 (1994). For this purpose, we consider the same factors under section 6651(f) that are considered in imposing the fraud penalty under section 6663 and former section 6653(b). Clayton v.. Commissioner, supra at 653. Fraud is an intentional wrongdoing designed to evade tax known or believed to be owing. Edelson v. Commissioner, 829 F.2d 828, 833 (9th Cir. 1987), affg. T.C. Memo. 1986-223; Bradford v. Commis

clear and convincing evidence. Sec. 7454(a); Rule 142(b); Clayton v. Commissioner, 102 T.C. 632, 646, 652-653 (1994). We consider the same factors under section 6651(f) that are considered in imposing the fraud penalty under section 6663 and former section 6653(b). Clayton v. Commissioner, supra at 653; see also Neely v. Commissioner, 116 T.C. 79, 85-86 (2001) (applying the extensive body of.law addressing fraud in the context of income, estate, and gift taxes to the employment tax context). 3P

However, the Court imposed sanctions against respondent, holding that Kersting program participants who had not had final decisions entered in their cases would be relieved of liability for (1) the interest component of the addition to tax for negligence under former section 6653(a), and (2) the incremental interest attributable to the increased rate prescribed in former section 6621(c).

However, the Court imposed sanctions against respondent, holding that Kersting program participants who had not had final decisions entered in their cases would be relieved of liability for (1) the interest component of the addition to tax for negligence under former section 6653(a), and (2) the incremental interest attributable to the increased rate prescribed in former section 6621(c).

g an underpayment for each taxable year. In ascertaining whether petitioner's failure to file was fraudulent under section 6651(f), the Court considers the same elements that are considered in imposing the fraud penalty under section 6663 and former section 6653(b). Clayton v. Commissioner, 102 T.C. 632, 653 (1994). Determining the existence of fraud is a question of fact and is resolved upon consideration of the entire record. Niedringhaus v. Commissioner, 99 T.C. 202, 210 (1992). Fraud is esta

413, 431 (1984) (holding that a section 7201 conviction collaterally estops a taxpayer from denying fraud for purposes of section 6653(b), the predecessor of section 6663), affd .

However, the Court imposed sanctions against respondent, holding that Kersting program participants who had not had final decisions entered in their cases would be relieved of liability for (1) the interest component of the addition to tax for negligence under former section 6653(a), and (2) the incremental interest attributable to the increased rate prescribed in former section 6621(c).

6653(b); Parks v. Commissioner, 94 T.C. 654, 660-661 (1990); Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989). Petitioners concede that they underpaid tax for 1995, 1998, and 1999. If respondent shows that any part of an underpayment is due to fraud, the entire underpayment is treated as due to fraud unless the taxpayer shows by a preponderan

If respondent shows that any part of an underpayment is due to fraud, the entire underpayment is treated as due to fraud unless the taxpayer shows by a preponderance of the evidence that part of the underpayment is not due to fraud. See sec. 6663(b). Fraud is the intentional evasion of a tax believed to be owing. Webb v. Commissioner,

Whether $400,000 Is Deductible Under Section 6653(a)(1) as a Claim Against Decedent's Gross Estate Based on the $400,000 Promissory Note 1.

spondent’s motion for reasons described below. -2- Respondent determined deficiencies in petitioner’s income tax and additions to tax and a penalty for taxable years 1986 to 1990 as follows:1 Additions to tax Penalty Year Deficiency Sec. 6651(a)(1) Sec. 6653(b)(1) Sec. 6663 1986 $152,373 $114,280 1987 10,819 8,115 1988 58,380 -- 43,785 -- 1989 55,509 $5,266 -- $41,632 1990 45,637 34,228 Section references are to the Internal Revenue Code as in effect during the years in issue. Rule references ar

No penalty shall be imposed under section 6653 or part II of subchapter A of chapter 68 for any offense to which this section is applicable.

he criminal context, the Government was required to prove petitioner’s guilt beyond a reasonable doubt. In this case, respondent must prove, by clear and convincing evidence, that petitioner had an underpayment of tax for 1987 and 1988 due to fraud (sec. 6653(b)) and that his failure to file tax returns for the other years in issue was fraudulent (sec. 6651(f)). Sec. 7454(a); Rule 142(b). Similar standards for proving fraud apply under either statute. See Clayton v. Commissioner, 102 T.C. 632, 6

(specially recognized), for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION VASQUEZ, Judge: Respondent determined the following deficiencies in, additions to, and penalties on petitioner’s Federal income taxes: - 2 - Additions to Tax Penalties Sec. 6653 Sec. 6653 Sec. Sec. Year Deficiency (a)(1) (b)(1) 6663 6662(a) 1988 $25,632 $749 $7,987 – -- 1989 42,187 -- – $17,709 $2,622 1990 56,315 -- – 31,889 2,580 1991 23,063 -- – 3,650 3,319 Unless otherwise indicated, all section references are to

§§ 6653(a)(1)(A), 6653(a)(1)(B) and 6653(a)(1) for the taxable years 1987 and 1988. Joseph N. Iezzi (Mr. Iezzi), a certified public accountant, prepared Form 1040 that petitioner and Mr. Monsour signed and jointly filed for each of their taxable years 1989 (1989 joint return), 1990 (original 1990 joint return), 1991 (1991 joint return), 1992 (1992 j

ns to Tax Year Deficiency Sec. 6651(f) Sec. 66541 1993 $12,253 $9,189.75 $513.41 1994 6,698 5,023.50 347.56 1995 5,554 4,165.50 301.16 1996 3,256 2,442.00 173.32 1997 5,269 3,951.75 281.90 1998 4,431 3,323.25 202.76 1 The notice of deficiency cites sec. 6653 as the basis for the addition to tax, but respondent’s answer clarified that sec. 6654 is the correct basis for this addition to tax. After concessions,1 the remaining issues for decision are (1) whether petitioner’s asserted vow of poverty

Respondent also determined that petitioners were liable for additions to tax for negligence under section 6653(a) and increased interest under section 6621(c) for 1980 and 1981.

issue whether the petitioner has been guilty of fraud with intent to evade tax, the burden of proof in respect of such issue shall be upon the Secretary. 23 The elements of fraud under sec. 6663 are essentially the same as those we considered under sec. 6653(b) of prior law. See also Rhone-Poulenc Surfactants v. Commissioner, 114 T.C. 533, 547-548 (2000); Clayton v. Commissioner, 102 T.C. 632, 652-653 (1994); Houser v. Commissioner, 96 T.C. 184, 185 n.1 (1991). - 44 - meet their burden of provi

MEMORANDUM FINDINGS OF FACT AND OPINION CHIECHI, Judge: Respondent determined the following defi- ciencies in, additions under section 6653(b)1 to, and fraud penalty under section 6663(a) on, petitioner’s Federal income tax 1All section references are to the Internal Revenue Code in effect for the years at issue.

Respondent also determined that petitioners were liable for additions to tax for negligence under section 6653(a) and increased interest under section 6621(c) for 1980 and 1981.

2003 046 - 2 - Year Deficiency 1979 $ 7,662 1980 13,123 - 1981 22,834 1982 16,069 The parties have also stipulated that these deficiency amounts constitute substantial underpayments of tax attributable to tax- motivated transactions under section 6621(c),¹ and that there are no additions to tax due from petitioners for 1980, 1981, and 1982 under section 6653(a)(1) and (2).

Respondent also determined that petitioners were liable for additions to tax for negligence under section 6653(a) and increased interest under section 6621(c) for 1980 and 1981.

mount. 5 Within the Stipulation of Settlement, Dr. Alt also agreed that he was liable for a $479,404 deficiency and a $359,553 addition to tax under sec. 6663 for the 1989 taxable year. - 8 - 6653(b)(2), and to the taxable years 1986 and 1987 under sec. 6653(b)(1)(B). On April 27, 1993, the Court entered a decision pursuant to this stipulation of settlement. In March 1994, on the basis of the reversal of Dr. Alt’s criminal conviction,6 petitioner and Dr. Alt filed a motion to vacate or revise th

t petitioner was liable for a $4,489 deficiency in his 1985 income tax and additions to tax under sections 6651, 6653(a)(1), and 6654 totaling $1,601. The notice also determined that petitioner was liable for the time-sensitive addition to tax under section 6653(a)(2). Petitioner did not petition the Court with respect to the notice. That notice was returned to respondent with a handwritten note on the envelope: “moved from this address.” 1 The notice pertained to 1983, 1984, and 1985. Because t

facts necessary to decide this case. - 3 - year 1990. In the notices, respondent determined deficiencies in petitioner and Mr. Rowe's Federal income taxes, additions to tax, and penalties as follows:3 Additions to Tax and Penalties Year Deficiency Sec. 6653 (b) (1) (A) Sec. 6653 (b) (1) (B) Sec. 6661 1987 $173,817 $130,363 ¹ $43,454 Sec. 6653(b)(1) Sec. 6661 1988 53,937 $40,453 $13,484 -- Sec. 6651(a)(1) Sec. 6663 1989 73,279 $13,792 $54,959 -- Sec. 6654 Sec. 6662(c) 1990 124,891 $8,057 $24,978

Accordingly, the period of limitations has not expired, and Metro is liable for the deficiencies in its income taxes, the section 6653 additions to tax for fraud, and the section 6663 fraud penalty.

EMORANDUM FINDINGS OF FACT AND OPINION VASQUEZ, Judge: Respondent determined the following deficiencies in, additions to, and penalties on petitioners’ Federal income taxes: Petitioner Terrell Equipment Co., Inc.: Additions to Tax Penalty Tax Year Sec. 6653 Sec. 6653 Sec. 6653 Sec. Ended Deficiency (b)(1)(A) (b)(1)(B) (b)(1) 6663 9/30/87 $162,029 $121,522 1 --- --- 9/30/88 65,423 --- --- $49,067 --- 9/30/89 84,891 --- --- --- $63,668 1 50 percent of the statutory interest on $162,029 Petitioners

EMORANDUM FINDINGS OF FACT AND OPINION VASQUEZ, Judge: Respondent determined the following deficiencies in, additions to, and penalties on petitioners’ Federal income taxes: Petitioner Terrell Equipment Co., Inc.: Additions to Tax Penalty Tax Year Sec. 6653 Sec. 6653 Sec. 6653 Sec. Ended Deficiency (b)(1)(A) (b)(1)(B) (b)(1) 6663 9/30/87 $162,029 $121,522 1 --- --- 9/30/88 65,423 --- --- $49,067 --- 9/30/89 84,891 --- --- --- $63,668 1 50 percent of the statutory interest on $162,029 Petitioners

1987. On brief, respondent concedes the claimed addition to tax for failure to pay under section 6651(a)(2) for 1987. At trial, petitioners conceded the claimed additions to tax for 1988 for both delinquency under section 6651 and negligence under section 6653. At trial, the parties stipulated that there are no additions to tax under section 6654. On brief, with respect to the deficiencies in tax for 1987 and 1988, petitioners propose that we find that, but for certain claimed credits and refund

Accordingly, the period of limitations has not expired, and Metro is liable for the deficiencies in its income taxes, the section 6653 additions to tax for fraud, and the section 6663 fraud penalty.

(1996) (in refund cases in the Tax Court, the statute of limitations is a jurisdictional question). Unless otherwise:indicated, all Rule references are to the Tax Court Rules of Practice and Procedure. - 4 - Additions to Tax Petitioners Deficiency Sec. 6653 (a) (1) Sec. 6653'(a) (2) Sec. 6661 The Harlans $548,186 $27,409 ¹ $137, 47 The ockels 62,490 3,125 2 15,653 ¹ 50 percent of interest due on $548,186. 2 50 percent of interest due on $62,490. The instant cases have been severed from docket N

(2d Cir. 1992); Parks v. Commissioner, supra at 664; Hebrank v. Commissioner, supra. If the Commissioner establishes that some portion of the underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to 2Former sec. 6653 was repealed and replaced by sec. 6663. See Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7721(a), 103 Stat. 2106, 2397. - 9 - fraud, except with respect to any portion of the underpayment which the taxpayer establishes is

The addition to tax for failure to file, section 6651(a), and not the addition to tax for fraud, (former) section 6653(b), is an issue.

Additions to tax, like those imposed for fraud under former section 6653(b) and section 6663 and for failure to file timely and to pay timely under section 6651(a)(1) and (2), are remedial, and not punitive.

r, 78 T.C. 304, 312 (1982), and cases cited therein. 6(...continued) to evade tax, the burden of proof in respect of such issue shall be upon the Secretary. 7The elements of fraud under sec. 6663 are essentially the same as those we considered under sec. 6653(b) of prior law. See also Rhone-Poulenc Surfactants v. Commissioner, 114 T.C. 533, 547-548 (2000); Clayton v. Commissioner, 102 T.C. 632, 652-653 (1994); Houser v. Commissioner, 96 T.C. 184, 185 n.1 (1991). - 20 - Where fraud is determined

tice and Procedure. After conceding certain items, respondent determined that petitioner is liable for deficiencies in income tax, an addition to tax, and penalties for the years and in the amounts as follows: Addition to Tax Penalty Year Deficiency Sec. 6653(b)(1) Sec. 6663 1988 $30,660 $22,995 -- 1989 33,549 -- $25,162 1990 9,280 -- 6,960 1991 37,835 -- 28,376 The issues to be decided are: (1) Whether petitioner had unreported income for the taxable years in issue as determined by respondent;

(1996) (in refund cases in the Tax Court, the statute of limitations is a jurisdictional question). Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure. - 4 - Additions to Tax Petitioners Deficiency Sec. 6653 (a) (1) · Sec. 66:53 (a) (2) Sec. 66 1 The Harlans $548,186 $27,409 1 . $137,.0 7 The Ockels 62,490 3,125 . 2 15,6 3 ¹ 50 percent of interest due on $548,186. 2 50 percent of interest due on $62,490. The inst'ant cases have been severed from

6653(a)(2) Sec. 6661 Petitioners Deficiency 6653(a)(1) The Harlans $548,186 $27,409 $137,047 The Ockelses 62,490 3,125 15,623 The instant cases have been severed from docket Nos. 15653-92 and 15654-92 for briefing and opinion on the second-tier partnership issue. The second-tier partnership issue has been submitted fully stipulated; the stipul

Respondent also determined that petitioners are liable for an addition to tax under section 6653(a)(2) in the amount of 50 percent of the interest due on the deficiency and that the increased interest provisions of section 6621(c) applied.

th respect to any substantial underpayment attributable to tax- motivated transactions. 2 Respondent determined that an additional amount is to be computed equal to 50 percent of the interest attributable to the entire 1987 underpayment pursuant to sec. 6653(a)(1)(B). After concessions, the sole issue to be decided is whether the periods of limitations for the years in issue expired before the issuance of the final partnership administrative adjustments (FPAA's). The resolution of this issue dep

Petitioners further concede that their only argument with respect to the additions to tax under section 6653 is that they were denied equal treatment with respect to the settlement offer, and they do not seek any further proceeding with respect to the merits under section 6653.

issued these notices of deficiency to petitioners, respondent issued a notice of deficiency (the 1984 notice) to petitioners for 1980 - 6 - determining a $29,311.50 deficiency in their 1980 Federal income tax and a $1,465.58 addition thereto under section 6653(a). The 1984 notice did not contain any adjustments related to Catamount and did not assert an addition to tax under section 6659 with respect to Catamount. Petitioners timely petitioned this Court to redetermine the determinations reflec

The courts have relied on numerous indicia of fraud in deciding cases under section 6663 and its predecessor section 6653(b) including: (1) Failure to report income over an extended period of time; (2) failure to file a tax return; (3) failure to furnish the Government with access to records; (4) failure to keep adequate books and records; (5) engaging in illegal activity; (6) concealment of bank accounts from an Internal Revenue agent; (7) giving implaus

6653 Sec. 6653 Sec. Ym Deficiency (a) (1) 6651(f) (b) (1) (A) (b) (1) (b) (1) (B) 6654 1986 $54,593 --- --- $40,945 --- 2--- --- 1987 73,676 --- --- 55,257 --- 2--- $2,791 1988 85,992 --- --- --- $64,494 --- 5,158 1989 132,429 --- $94,988 --- --- --- 8,522 1990 40,064 $8,650 --- --- --- --- 2,238 1991 14,052 1,961 --- --- --- --- 412

6653 Year Deficiency 6651(f) (b)(1)(A) (b)(1)(B) Sec. 6653(b)(1) 1987 $6,083 N/A $4,562.25 1 N/A 1988 3,189 N/A N/A N/A $2,391.75 1989 29,501 $22,125.75 N/A N/A N/A 1990 1,909 1,431.75 N/A N/A N/A 150 percent of the interest due on $6,083 The issues for decision are: (1) Whether petitioner had unreported taxable income during the yea

and determined that petitioner was a partner when the ranch was sold in 1988, that petitioner was required to report his distributive share of partnership income for 1988, and that petitioners were liable for additions to tax under section 6653 and section 6661.

Respondent also determined an addition to tax under section 6653(a)(2) in the amount of 50 percent of the interest due on a deficiency in the amount of $111,277 and that the increased interest provisions of section 6621(c) applied.

Respondent conceded that petitioners were not liable for additions to tax under section 6653 or 6659.

The Court entered a stipulated decision on March 29, 1994, that there were deficiencies in petitioner's Federal income taxes in the amounts of $637 for 1988 and $982 for 1990, that there was an addition to tax due for 1988 under section 6653(a)(1) in the amount of $31, and that there was a penalty due for 1990 under section 6662(a) in the amount of $196.

6653 6653 6653 6653 6653 6653 6653 Sec. Year Deficiency (a)(1) (a)(1)(A) (a)(1)(B) (b)(1) (b)(1)(A) (b)(1)(B) (b)(2) 6661 1985 $163,048 -- -- -- $81,524 -- -- ** $40,762 1986 163,948 -- $179 * -- $120,280 ** -- 40,987 1987 109,791 -- 662 * -- 72,408 ** -- 27,448 1988 21,488 $39 -- -- 12,262 -- -- -- 5,372 * 50 percent of interest due on portio

The additions to tax are for overvaluation under section 6659 and negligence under section 6653(a)(1) and (2).

Negligence Petitioners contend that they are not liable for the addition to tax for negligence under section 6653(a)(1) for 1988 and section 6662 for 1989 and 1991 because they relied on Bailey.

MEMORANDUM FINDINGS OF FACT AND OPINION GALE, Judge: Respondent determined a deficiency of $43,750 in petitioner’s Federal income taxes for 1980 and an addition to tax of $2,188 under section 6653(a).1 Respondent also determined 1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and (continued...) - 2 - that, once the deficiency is determined, petitioner is liable for increased interest on an underpayment attributable to a tax-

MEMORANDUM OPINION FOLEY, Judge: By notice dated March 12, 1997, respondent determined a $6,102 deficiency and section 6653(b) additions to tax relating to petitioners' 1985 Federal income tax.

In determining whether a failure to file a return is fraudulent under section 6651(f), we consider the same elements as we did when considering the imposition of the addition to tax for fraud under prior law (former section 6653(b)(1)), and as we do under present section 6663.

But even then, as the Court noted in United States v. LaSalle Natl. Bank, supra at 311-312: “The Government does not sacrifice its interest in unpaid taxes just because a criminal prosecution begins.” Moreover, the civil fraud additions to tax, see sec. 6653(b), as a part of the civil tax liabilities, are very much a part of the investigation. There is, however, a more fundamental error in petitioner’s reasoning. The gravamen of the argument from petitioner’s point of view is that the decision

r the taxable year 1988 (the notice of deficiency for 1988). In the notice of deficiency for 1988, respondent determined the following deficiency in petitioner's Federal income tax and additions to tax: Additions to Tax Year Deficiency Sec. 6651(a) Sec. 6653(a)(1) 1988 $9,713 $320 $486 On February 23, 1993, respondent sent petitioner a notice of deficiency for the taxable year 1989 (the notice of deficiency for 1989). In the notice of deficiency for 1989, respondent determined the following defi

Section 7721(a) of the 1989 Act amended former section 6653 to read almost verbatim with former section 6653(e); i.e., section 6653 now applies only to a failure to pay tax by way of stamps, coupons, tickets, books, or other devices or methods prescribed by the Code or regulations thereunder.

not subject to the first-tier excise tax of sec. 4975(a) or any additions to tax for the taxable years 1986 and 1987, as determined in the notice of deficiency. Additionally, respondent concedes petitioner is not subject to an addition to tax under sec. 6653(a)(1) for the taxable year ended Dec. 31, 1988. -3- for an addition to tax under section 6651(a)(1) for failure to file excise tax returns; and (4) whether respondent had authority to issue a notice of deficiency in regard to a prohibited t

When determining whether a failure to file is fraudulent under section 6651(f), we must consider essentially the same elements as are considered in imposing the addition to tax for fraud under former section 6653(b)(1) and the present section 6663.

nvestigation of the Alamo partnerships, were not the actions that a reasonable and ordinary prudent person would have taken under the circumstances. Accordingly, we conclude that the underpayments for the years at issue were due to negligence under section 6653. If the Court finds petitioners negligent, as we have, petitioners request a finding under section 6653(a)(2) as to the portion of the underpayment that is attributable to negligence, and the time period during which the underpayments wer

ly and severally liable for the penalty for civil fraud if respondent establishes that Mrs. Lorenz is liable for the fraud penalty independent of the liability of the estate of Mr. Lorenz. See Meier v. Commissioner, 91 T.C. 273, 303 n.34 (1988) (for sec. 6653(b)); Stone v. Commissioner, 56 T.C. 213, 227-228 (1971). The basis of settlement provides that the civil fraud penalty - 10 - will be asserted in full against the estate of Mr. Lorenz and that Mrs. Lorenz is liable for a reduced fraud penal

dge: On April 12, 1996, respondent issued a notice of deficiency to Ernest and Ann Infelise. In the notice, respondent determined the following deficiencies in and additions to petitioners' Federal income tax: - 2 - Additions to Tax Year Deficiency Sec. 6653(b) Sec. 6661 1983 $168,488 $84,244 $42,122 1984 64,130 32,065 16,033 1985 54,404 27,202 13,601 1986 122,711 92,033 30,678 1988 51,165 38,374 12,791 In their petition, filed on July 10, 1996, Ernest and Ann Infelise challenged respondent's de

n the time prescribed in section 6213(a) or section 7502. Background Respondent determined deficiencies in petitioner's Federal income taxes for the taxable years 1979, 1980, and 1981, and additions to tax as follows: Addition to Tax Year Deficiency Sec. 6653(b) Sec. 6654 1979 $6,575 $3,287 $274 1980 2,120 1,060 136 1981 10,689 5,345 817 The evidence in this case consists of a stipulation of facts with attached exhibits (incorporated herein by reference) and oral testimony presented at the heari

been convicted of criminal tax fraud as to their 1988, 1989, and 1990 joint tax returns, but denying the estoppel subparagraphs of paragraph 8, as follows: 8(h)-(i). Denies that the respondent [sic] is liable for the additions to the tax imposed by I.R.C. § 6653 (b) (1) for 1988, and by I.R.C. § 6663 for 1989 and 1990 as determined by respondent on the statutory notice of deficiency, for the reason that the respondent [sic] is not liable for tax for the years in issue to which such penalties wo

632, 653 (1994) (inquiry into fraud under section 6651(f) is similar to inquiry into fraud under former section 6653(b)(1)).

6653(b); Scallen v. Commissioner, 877 F.2d 1364, 1369 (8th Cir. 1989), affg. T.C. Memo. 1987-412; Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968); Parks v. Commissioner, supra at 660-661; Hebrank v. Commissioner, 81 T.C. 640, 642 (1983); Rowlee v. Commissioner, 80 T.C. 1111 (1983). - 18 - Fraud may not be found under "circumsta

Section 6653, 6659, and 6661. * * * * * * * 13. The taxpayers' taxable income for any taxable year shall not be increased at any time after the execution of this agreement due to the taxpayers' interest in the partnerships, except to the extent that the taxpayer receive actual distributions of cash and/or property from the partnerships after the ex

Additions to Tax for Fraud Under Section 6653 The next issue for our consideration is whether petitioner is liable for additions to tax for fraud under section 6653(b)(1)(A) and (B) or, in the alternative, for negligence - 24 - under section 6653(a)(1)(A) and (B).9 Section 6653(b)(1)(A) imposes an addition to tax equal to 75 percent of the underpayment attributable to fraud.

For purposes of section 6653, "fraud" is defined as an actual, intentional wrongdoing, or intentionally committing an act specifically to evade a tax believed to be owing.

Section 7721(a) of the 1989 Act amended former section 6653 to read almost verbatim with former section 6653(e); i.e., section 6653 now applies only to a failure to pay tax by way of stamps, coupons, tickets, books, or other devices or methods prescribed by the Code or regulations thereunder.

eferences are to the Tax Court Rules of Practice and Procedure. Respondent determined additions to, and penalties on, the Federal income tax of petitioners for the taxable years 1987 through 1990 as follows: Additions to tax Sec. Year 6653(a)(1)(A) Sec. 6653(a)(1)(B) Sec. 6659 Sec. 6661 Penalties sec. 6662(a) 1987 $3,253 50 percent of the interest due on $65,053 $6,284 $11,031 1988 727 1,824 2,114 1989 $8,423 1990 19 293 The issues for decision are: (1) Whether to grant the parties’ respective m

cess of $50,000; (2) held that the transaction, which was almost identical to the transactions in the present cases, was a sham because it lacked economic substance and a business purpose; - 25 - (3) upheld the additions to tax for negligence under section 6653(a)(1) and (2); (4) upheld the addition to tax for valuation overstatement under section 6659 because the underpayment of taxes was directly related to the overvaluation of the Sentinel EPE recyclers; and (5) held that losses and credits c

Additionally, petitioner's conviction under section 7201 collaterally estops him from denying that there is an underpayment of his income tax and that some part of the underpayment is due to fraud for purposes of section 6653(b)(1)(A) and (B) for 1987.

N WHALEN, Judge: Respondent determined the follow- ing deficiencies in, additions to, and penalties on petitioners' Federal income tax for the years in issue: - 2 - William Whelpley, Jr., docket No. 21644-93: Addition to Tax Penalty Year Deficiency Sec. 6653 Sec. 6662 1987 $3,612 $181 -- 1989 1,148 -- $230 William and Sara Whelpley, docket No. 21690-93: Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6661 Sec. 6662 1987 $26,076.87 $1,304 $6,519 -- 1989 22,047.87 -- -- $4,410 Unless state

fect at the time the petition was filed. - 3 - Respondent issued a statutory notice of deficiency on February 14, 1994, in which deficiencies in income tax and additions to tax were determined as follows: Tax Year Ended Deficiency Additions to Tax Sec. 6653(a) Sec. 6661 July 31, 1988 (TYE 1988) $93,500 $4,675.00 $23,375 July 31, 1989 (TYE 1989) 73,651 3,682.55 20,883 Total 167,151 8,357.55 44,258 The notice of deficiency also made adjustments to petitioner's fiscal 1990 tax year, although no def

Section 6653 Underpayment of Tax for 1987 and 1988 To impose liability under section 6653(b)(1)(A) and (B) for 1987 and section 6653(b)(1) for 1988, respondent must first prove that there has been an underpayment of taxes for the years in issue. Lee v. United States, 466 F.2d 11, 16-17 (5th Cir. 1972); Plunkett v. Commissioner, 465 F.2d 299, 303 (7

As under the predecessor section covering the addition to tax for negligence, section 6653(a), petitioner bears the burden of proof on the penalty in issue.

tions to Tax Sec. Sec. Sec. Year Deficiency 6653(a)(1) 6653(a)(2) 6661 1985 $ 6,293 $ 314 * $1,573 1986 10,186 1509 *1 2,546 *50 percent of the interest due on the underpayment attributable to negligence. 1These additions to tax, for 1986, are under sec. 6653(a)(1)(A) and (B). Respondent also determined increased interest, under section 6621(c), for each of the years at issue. The issues for decision are: (1) Whether respondent timely issued the aforementioned notices of deficiency to petitioner

rejected. It was in the preparation of the Offer in Compromise that petitioner, through her representative, realized that the signature that purported to be hers on the stipulated decision document was not hers in fact. 4(...continued) provisions of I.R.C. sec. 6653(a). 5 The parties agree that Richard Kestenbaum, petitioners' then counsel, did not sign petitioner's name to the July 26, 1991, stipulated decision. -7- On April 16, 1996, petitioner's motion for leave to file a motion to vacate dec

Sec. Sec. Year Deficiency 6621(c) 6651(a)(1) 6653(a)(1) 6653(a)(2) 6659 6661 1979 $59,740 * $14,935 $2,987 -- -- -- 1980 64,707 * 6,471 3,235 -- -- -- 1981 70,012 * 10,502 3,501 ** $21,004 -- 1982 34,225 * 10,701 3,381 ** 10,267 $3,423 * 120 percent of interest accruing after Dec. 31, 1984, on portion of underpayment attributable

Year Deficiency 6653(a) 6653(a)(1) 6659 6661 1979 $68,798 $3,440 --- --- --- 1980 161,063 8,053 --- --- --- 1981 88,298 --- $4,415 --- --- 1982 422,140 --- 21,107 $111,688 $12,462 Respondent also determined that petitioners were liable for additions to their 1981 and 1982 taxes under section 6653(a)(2), and that their 1982 income tax liability was subject to an increased rate of interest under section 6621(c).

6653(a)(1)/ Sec. Sec. Sec. Year Deficiency 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6661 6662(a) 1987 $440,539 --- $22,027 * $110,135 --- 1988 202,360 --- 10,118 --- 50,590 --- 1989 215,930 $7,845 --- --- --- $43,186 * 50 percent of interest due on portion of underpayment attributable to negligence. In an Amendment to Answer, respondent increase

Petitioner asserts that he is not liable for the additions to tax under section 6653 because of reasonable, good faith reliance on professional advice, which he received from Arnold R.

N WHALEN, Judge: Respondent determined the follow- ing deficiencies in, additions to, and penalties on petitioners' Federal income tax for the years in issue: - 2 - William Whelpley, Jr., docket No. 21644-93: Addition to Tax Penalty Year Deficiency Sec. 6653 Sec. 6662 1987 $3,612 $181 -- 1989 1,148 -- $230 William and Sara Whelpley, docket No. 21690-93: Additions to Tax Penalty Year Deficiency Sec. 6653 Sec. 6661 Sec. 6662 1987 $26,076.87 $1,304 $6,519 -- 1989 22,047.87 -- -- $4,410 Unless state

Year Deficiency 6653(a) 6653(a)(1) 6659 6661 1979 $68,798 $3,440 --- --- --- 1980 161,063 8,053 --- --- --- 1981 88,298 --- $4,415 --- --- 1982 422,140 --- 21,107 $111,688 $12,462 Respondent also determined that petitioners were liable for additions to their 1981 and 1982 taxes under section 6653(a)(2), and that their 1982 income tax liability was subject to an increased rate of interest under section 6621(c).

sales manager for a company 2 Petitioner concedes she is liable for the additions to tax under sec. 6651(a)(1) for each taxable year in issue, and under sec. 6654(a) for the taxable years 1990 and 1991. Respondent concedes the addition to tax under sec. 6653(a)(1) for 1988 and the penalty under sec. 6662(a) for 1989. Petitioner concedes she is liable for self-employment tax on her taxable income as finally redetermined, and agrees to all of the arithmetical adjustments set forth in the notice o

chelle Or, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Chief Judge: Respondent determined deficiencies in, an addition to, and a penalty on, petitioner's Federal income taxes as follows: Addition to Tax and Penalty Year Deficiency Sec. 6653(b) Sec. 6663 1988 $16,590 $11,387 --- 1989 37,184 --- $26,523 - 2 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of

As in the case of the predecessor section covering the addition to tax for negligence, section 6653(a), petitioners bear the burden of proof on the penalties in issue.

dent also determined additions to tax under sections 6653(a)(1) for negligence and 6661 for substantial understatement of tax. Petitioner has conceded the disallowance of the $813,462 claimed interest expense deduction and the addition to tax under section 6653(a)(1). Discussion Under section 6661(b)(1)(A), a substantial understatement of tax occurs where the understatement exceeds the greater of $5,000 or 10 percent of the amount of tax required to be shown on the return. The amount of the addi

de in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. - 3 - Claude P. Brown and Estate of Mary Stroud Brown, Deceased, Claude P. Brown, Executor Addition to Tax Docket No. Year Deficiency Sec. 6653(a)(1) 14270-86 1981 $9,956,314 $4,978,157 Respondent also determined with respect to petitioners I.C. Hemmings and Sue B. Hemmings that the entire deficiency amounts for 1978 and 1979 and $1,667,468 of the deficiency for 1980 are substantial

llows: 1 Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all chapter and section references are to the Internal Revenue Code in effect for the taxable years at issue. - 2 - Additions to Tax Sec. 6653 Sec. 6653 Sec. 6653 Sec. 6653 Sec. Year Deficiency (b)(1)1 (b)(2) (b)(1)(A)1 (b)(1)(B) 6654 1982 $3,323 $1,662 2 --- --- $85 1983 4,336 2,168 2 --- --- 266 1984 1,291 646 2 --- --- 52 1985 3,944 1,972 2 --- --- 222 1986 4,089 --- --- $3,067 2

6662 1988 $ 3,868 --- $193 --- 1989 $12,366 $1,378 --- $2,473 - 2 - After concessions by the parties, the issue for decision is whether petitioners may take a business bad debt deduction for payment made on a guarantee of corporate indebtedness. Background This case was submitted fully stipulated under Rule 122.1 The stipulation of

ion 1.6661-3(a)(2), Income Tax Regs., provides in part: The substantial authority standard is less stringent than a "more likely than not" standard (that is, a greater than 50-percent likelihood of being upheld in litigation) but stricter than a reasonable basis standard (the standard which, in general, will prevent imposition of the penalty under section 6653(a), relating to negligence or intentional disregard of rules and regulations).

cess of $50,000; (2) held that the transaction, which was almost identical to the transactions in the present cases, was a sham because it lacked economic substance and a business purpose; - 25 - (3) upheld the additions to tax for negligence under section 6653(a)(1) and (2); (4) upheld the addition to tax for valuation overstatement under section 6659 because the underpayment of taxes was directly related to the overvaluation of the Sentinel EPE recyclers; and (5) held that losses and credits c

In separate notices of deficiency issued on April 2, 1996, respondent determined additions to tax for negligence under section 6653(a)(1) and (2) and for the substantial understatement of tax liability under section 6661 for 1982 and 1983.

de in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. - 3 - Claude P. Brown and Estate of Mary Stroud Brown, Deceased, Claude P. Brown, Executor Addition to Tax Docket No. Year Deficiency Sec. 6653(a)(1) 14270-86 1981 $9,956,314 $4,978,157 Respondent also determined with respect to petitioners I.C. Hemmings and Sue B. Hemmings that the entire deficiency amounts for 1978 and 1979 and $1,667,468 of the deficiency for 1980 are substantial

6653 6653 6653 6653 Sec. Year Deficiency (b)(1) (b)(1)(A) (b)(2) (b)(1)(B) 6661 1985 $4,770 $2,385 -- 50% of the -- -- interest due on $4,770 1986 66,094 -- $49,571 -- 50% of the $16,524 interest due on $66,094 1987 15,757 -- 11,818 -- 50% of the 3,939 interest due on $15,757 The issues for decision are as follows: 1. Whether petitioner failed

de in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. - 3 - Claude P. Brown and Estate of Mary Stroud Brown, Deceased, Claude P. Brown, Executor Addition to Tax Docket No. Year Deficiency Sec. 6653(a)(1) 14270-86 1981 $9,956,314 $4,978,157 Respondent also determined with respect to petitioners I.C. Hemmings and Sue B. Hemmings that the entire deficiency amounts for 1978 and 1979 and $1,667,468 of the deficiency for 1980 are substantial

As under the predecessor section covering the addition to tax for negligence, section 6653(a), petitioner bears the burden of proof on the penalty in issue.

Revenue Code in effect at the time the petition was filed. Respondent issued a statutory notice of deficiency on February 14, 1994, in which deficiencies in income tax and additions to tax were determined as follows: Additions to tax TYE Deficiency Sec. 6653(a) Sec. 6661 7/31/88 (TYE 1988) $93,500 $4,675.00 $23,375 7/31/89 (TYE 1989) 73,651 3,682.55 20,883 Total 167,151 8,357.55 44,258 The notice of deficiency also made adjustments to petitioner’s fiscal 1990 tax year, although no deficiency wa

The addition to tax for negligence under section 6653 may be correctly assessed in cases where claimed deductions are not supported by the facts.

Where fraud is established for a year, the 75-percent fraud addition to tax for 1988 under section 6653(b)(1) and (2) and the 75-percent fraud penalty for 1989 and 1990 under section 6663(a) and (b) apply to the entire tax deficiency unless the taxpayer establishes that some portion of the underpayment is not attributable to fraud.

interest due on $13,333 1985 8,435 4,218 -- 50% of the -- 484 interest due on $8,435 1986 4,787 -- $3,590 -- 50% of the 146 interest due on 4,787 In the alternative to her determination that petitioner is liable for additions to tax for fraud under section 6653, respondent determined that petitioner is liable for various additions to tax under section 6651(a)(1), section 6653(a)(1) and (2), and section 6653(a)(1)(A) and (B) for the taxable years in issue.

(Stanko Packing), as follows: An income tax deficiency in the amount of $1,324,964, and additions to tax for failure to file under 2 section 6651(a) in the amount of $323,806, for negligence under section 6653(a)(1) and (2) in the amounts of $66,248 and 50 percent of the interest due on $1,295,223, and for failure to pay corporate estimated income tax under section 6655 in the amount of $83,203.

Schleier and Elaine Sierra, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION WELLS, Judge: Respondent determined the following deficiency in, and additions to, petitioners' 1988 Federal income tax: Additions to Tax Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) $155,255 $38,485 $7,856 - 2 - Unless otherwise indicated, all section references are to the Internal Revenue Code as in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. After

hael Salama, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Judge: Respondent determined a deficiency of $310,670 in petitioner’s Federal income tax for 1988 and additions to tax of $77,667 under section 6651(a)(1) and $15,749 under section 6653(a)(1). The issues for decision are whether funds received by petitioner in 1988 constituted taxable income and whether petitioner is liable for the additions to tax - 2 - determined by respondent. Unless otherwise indicated, all section r

The Court entered a decision that, for the year 1984, petitioners owed an income tax deficiency of $212,697, with additions to tax under sections 6653(a)(1) and 6661 of $10,635 and $53,174, respectively, and under section 6653(a)(2) of 50 percent of the interest due on the deficiency.

, but that petitioner will be subject to an addition to tax under sec. 6661 for its fiscal year 1989 if there is a substantial understatement of tax as defined in sec. 6661(b) for that year, and that petitioner is liable for an addition to tax under sec. 6653(a) if petitioner is liable for an addition to tax under sec. 6661. For its fiscal year 1990, the parties have stipulated that petitioner is liable for an addition to tax under sec. 6651, and that petitioner will be liable for an accuracy- r

Section 6653 Negligence Addition Respondent determined that petitioners are liable for an addition to tax for negligence under section 6653(a)(1) for 1988. Section 6653(a)(1) provides that, if any part of any underpayment is due to negligence or disregard of rules or regulations, there shall be added to the tax an amount equal to 5 percent of the u

AND OPINION FOLEY, Judge: By notice dated March 7, 1994, respondent determined the following deficiencies, additions, and penalty with respect to petitioners' 1988 and 1989 Federal income tax: Additions To Tax Penalty Year Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) Sec. 6662(a) 1988 $14,921.60 $3,730.40 $746.08 -- 1989 3,387.00 846.75 -- $451.20 - 2 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are

in, and additions to, petitioner’s Federal income taxes: 1 These cases, hereinafter referred to as the instant case, have been consolidated for purposes of trial, briefing, and opinion. - 2 - Additions to Tax Penalty Year Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) Sec. 6654 Sec. 6661 Sec. 6662(a) 1988 $57,984 -0- $40 -0- $14,051 -0- 1989 14,202 $1,445 -0- $922 -0- $2,840 After concessions, the only issues remaining for decision are: (1) Whether petitioner is entitled to "innocent spouse" relief

6653(a)(1)/ 6653(a)(2)/ Sec. April 30 Deficiency 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6661 1986 $214,988 $53,747 $10,749 1 $53,747 1987 238,492 59,623 11,925 1 59,623 1988 266,342 66,585 13,317 1 66,585 1989 239,264 59,816 11,963 1 59,816 Additions to Tax and Penalties TYE Sec. Sec. Sec. Secs. July 31 Deficiency 6651(a)(1) 6653(a)(1)(A) 6653

MEMORANDUM OPINION VASQUEZ, Judge: This case is before the Court on respondent's motion for entry of default judgment pursuant to Rule 123(a).1 By separate notices of deficiency, respondent determined additions to petitioner's Federal income tax for fraud under section 6653(b), as follows:2 1 All Rule references are to this Court's Rules of Practice and Procedure, and all section references are to the Internal Revenue Code in effect for the years in issue.

Section 6653(c)(1) defines an underpayment for the purposes of section 6653 as a deficiency as defined by section 6211.

Alternatively, petitioner contends that the fraud on which the additions to tax under section 6653 are based is attributable solely to Martin.

As in the case of the predecessor section covering cases of this type, section 6653(a), the burden of proof to show error on the part of respondent is clearly placed upon petitioner.

As under the predecessor section covering the addition to tax for negligence, section 6653(a), petitioners bear the burden of proof on the penalty in issue.

itioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 21523-92. Filed April 16, 1996. Held: respondent's deficiency determinations are sustained; held, further, petitioners are liable for additions to tax under sec. 6651(a)(1), I.R.C., sec. 6653 (a)(1), I.R.C., and sec. 6661, I.R.C., for 1988; and for the accuracy-related penalty under sec. 6662(a), I.R.C., for 1989. Ara Eresian and Evelyn Eresian, pro se. Paul Colleran, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION NIMS,

For purposes of section 6662, just as for section 6653, negligence includes any failure to make a reasonable attempt to comply with the internal revenue laws.

-2- Additions to Tax Year Deficiency Sec. 6653(a)(1)* Sec. 6653(a)(2) Sec. 6661 1985 $388,937 $19,447 2 $ 97,235 1986 950,703 47,535 2 237,676 ¹ The addition to tax for negligence or intentional disregard of rules or regulations is codified under sec. 6653 (a) (1) (A) and (B) for 1986. 2 50 percent of the interest due on the deficiency. Susanne Ballantyne is a party to this case by virtue of having filed a joint return for the years under consideration with her husband, Don. Accordingly, Don Ba

ther at trial or on brief to convince us that their omissions from gross income and excess deductions were not the result of negligence. Therefore, we sustain respondent's determination. Additions to Tax for Substantial Understatement of Income Tax 5Sec. 6653 was amended by sec. 1503(a) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2742, effective for returns the due date of which is after Dec. 31, 1986. As amended, the 5-percent addition to tax for negligence or disregard of ru

such notice. Respondent contends that this Court lacks jurisdiction to reduce the amount of the underpayment; i.e., the computational adjustment, in an affected items proceeding. We agree with respondent. 3 The additions to tax for negligence under sec. 6653(a)(1) and (2), as well as the addition to tax for substantial understatement of income tax under sec. 6661, are predicated on an underpayment of tax. In other words, the amount of such additions is directly related to the amount of an under

Section 6653(c)(1) defines an underpayment for the purposes of section 6653 as a deficiency as defined by section 6211.

For tax year 1988, the parties stipulated that petitioner had a deficiency in tax of $544 and an addition to tax under section 6653(a)(1) of $27, and no additions to tax under sections 6651(a)(1) and 6661.

Further, respondent conceded the inapplicability of the section 6653(a)(1) addition to tax, and although the settlement stipulation denies the deferral of gain on the sale of the Seattle house in its entirety, we do not believe the mischaracterization of this item constitutes a grossly erroneous item within the purview of section 6013(e)(2).

m J. Gregg and Thomas J. Kerrigan, for respondent. - 2 - MEMORANDUM FINDINGS OF FACT AND OPINION NIMS, Judge: Respondent determined the following deficiencies in petitioners' Federal income tax and additions to tax: Additions to Tax Year Deficiency Sec. 6653(a) 1976 $49,828 $2,491 1977 21,612 1,091 1978 12,453 623 Respondent also determined additional interest under section 6621(c) for each year as a result of substantial underpayments of income tax attributable to tax motivated transactions. Af

As is the case of the predecessor section covering the addition to tax for negligence, section 6653(a), petitioner bears the burden of proof on the penalties in issue.

es taxpayers have succeeded in avoiding additions to tax by showing that the deficiency resulted from an honest and reasonable misunderstanding of complex law. Metra Chem Corp. v. Commissioner, 88 T.C. 654, 661 (1987) (no negligence for purposes of sec. 6653(a)); Yelencsics v. Commissioner, 74 T.C. 1513, 1533 (1980) (same); Belz Inv. Co. v. Commissioner, 72 T.C. 1209, 1233- 1234 (1979), affd. 661 F.2d 76 (6th Cir. 1981) (same). Petitioner's situation does not present a complex legal issue reason

NDUM FINDINGS OF FACT AND OPINION PARKER, Judge: Respondent determined the following deficiencies in tax, additions to tax, and penalty for petitioner Carla J. Zimmerman and her husband, Charles R. Zimmerman: Additions to Tax Penalty Year Deficiency Sec. 6653(a) Sec. 6661 Sec. 6651(a)(1) Sec. 6662(a) 1988 $13,977.82 $698.89 $3,494 --- --- 1989 14,786.75 --- --- $3,615.75 $2,957.35 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable years

6653(b)(1) and (2). The existence of fraud involves a question of fact. Parks v. Commissioner, 94 T.C. 654, 660 (1990); Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383 (8th Cir. 1978). Respondent must establish by clear and convincing evidence that there was an underpayment of tax and that the u

When determining whether a failure to file is fraudulent under section 6651(f), we must consider the same elements as are considered in imposing the addition to tax for fraud under former section 6653(b)(1) and the present section 6663.

The Affected Items Proceeding On August 26, 1994, respondent mailed petitioner a notice of deficiency in which respondent determined that, for 1982, petitioner was liable for additions to tax for negligence under section 6653(a)(1) and 6653(a)(2) and an addition to tax for a substantial understatement of income tax under section 6661.

Additions to Tax Finally, respondent made further determinations of additions to tax under section 6651(a) for 1988 thorough 1990, section 6653(a)(1) for 1988, and section 6654 for 1989 and 1990, and an accuracy-related penalty under section 6662(a) for 1991.

weight to be attached to external factors. Blum, “Motive, Intent, and Purpose in Federal Income Taxation”, 34 U. Chi. Law Rev. 485, 544 (1967); cf. Recklitis v. Commissioner, 91 T.C. 874, 910 (1988) (the objective “badges” or indicia of fraud under sec. 6653); sec. 1.183-2(b), Income Tax Regs, (enumerating the objective factors taken into account evidencing a profit motive). The proper tax characterization cannot turn on the separate intentions of multiple participants in an organization, since

In it, respondent and Kathleen Pert, personal representative for the Estate of Timothy Riffe, agreed to deficiencies in and additions to the income tax of Timothy Riffe, deceased, for taxable years 1986, 1988, and 1989, including liability for the addition to tax for civil fraud for 1986 under section 6653(b)(1)(A) and (B).

6653 6653 6653 6653 Sec. Year Deficiency (b)(1) (b)(2) (b)(1)(A) (b)(1)(B) 6661 1983 $165,498 $104,567 * $41,374 1984 164,324 148,555 * 41,081 1985 150,708 75,354 * 30,177 1986 95,021 $71,266 * 23,755 * 50 percent of interest due on portion of underpayment attributable to fraud. Yarbrough Oldsmobile Cadillac, Inc. Additions to Tax Sec. Sec. Se

edure, unless otherwise indicated. - 4 - of $81,054.21, an addition to tax for 1966 due from petitioner under section 6651(a) in the amount of $33,301.12, and an addition to tax for the year 1966 in the amount of $6,660.22 due from petitioner under section 6653(a). The additions to tax were timely assessed on December 12, 1977. Petitioner appealed our decision to the Court of Appeals for the Ninth Circuit. The Court of Appeals affirmed our decision in an unpublished opinion dated March 19, 1981.

1992. - 2 - MEMORANDUM FINDINGS OF FACT AND OPINION PARR, Judge: Respondent determined deficiencies in petitioners' Federal income tax and additions to tax as follows: Joseph T. and Nancy Walker Docket No. 4923-90 Additions to Tax Year Deficiency Sec. 6653(b)1 1978 $96,900.21 $48,450.11 1979 104,619.49 52,309.75 1980 183,321.39 91,666.07 1981 124,031.84 62,015.92 The fraud addition was determined as to Joseph T. 1 Walker only. West Jersey Manufacturing Co., Inc. Docket Nos. 18842-90 and 28294-9

7 Fraud, as used in section 6653(b), means actual intentional wrongdoing.

1992. - 2 - MEMORANDUM FINDINGS OF FACT AND OPINION PARR, Judge: Respondent determined deficiencies in petitioners' Federal income tax and additions to tax as follows: Joseph T. and Nancy Walker Docket No. 4923-90 Additions to Tax Year Deficiency Sec. 6653(b)1 1978 $96,900.21 $48,450.11 1979 104,619.49 52,309.75 1980 183,321.39 91,666.07 1981 124,031.84 62,015.92 The fraud addition was determined as to Joseph T. 1 Walker only. West Jersey Manufacturing Co., Inc. Docket Nos. 18842-90 and 28294-9

- 2 - additions to tax under sections 6653(a)(1) and 6659 in the respective amounts of $414.40 and $2,457.30, and under section 6653(a)(2) in the amount of 50 percent of the interest due on the underpayment of tax attributable to negligence or intentional disregard of rules and regulations.

6653(a)(1)(A) 6653(a)(1)(B) 6661 1987 $91,789 $4,589 1 $22,947 Sec. Sec. Sec. 6651(a)(1) 6653(a)(1) 6661 1988 40,848 8 $2,050 10,212 Sec. 6662 1989 9 $2 1 50 percent of the interest due on $91,789. All section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Pra

In it, respondent and Kathleen Pert, personal representative for the Estate of Timothy Riffe, agreed to deficiencies in and additions to the income tax of Timothy Riffe, deceased, for taxable years 1986, 1988, and 1989, including liability for the addition to tax for civil fraud for 1986 under section 6653(b)(1)(A) and (B).

--- MAJORITY --- OPINION Scott, Judge: Respondent determined deficiencies in petitioners’ Federal income taxes and additions to tax as follows: Additions to tax Year Deficiency Sec. 6653(a) Sec. 6662 6/30/89 ■ $3,474,671 $173,734 6/30/90 2,575,105 $231,580 6/30/91 2,181,276 118,195 All section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. When this case was ca

In it, respondent and Kathleen Pert, personal representative for the Estate of Timothy Riffe, agreed to deficiencies in and additions to the income tax of Timothy Riffe, deceased, for taxable years 1986, 1988, and 1989, including liability for the addition to tax for civil fraud for 1986 under section 6653(b)(1)(A) and (B).

to PR during that period. 3. Held, further, PR is not liable as a transferee under sec. 6324(b), I.R.C. 4. Held, further, PM is not liable as a transferee under sec. 6324(b), I.R.C. 5. Held, further, EC is not liable for a fraud penalty pursuant to sec. 6653!(b), I.R.C., because R has not carried her burden of prqving liability. Ru.le 142(b), Tax Court Rules of Practice and Procedure. Matthew F. Sarnell, Stanley L. Kantor, Gregory A. Robinson, and Melvin Paradise, for petitioners. Frances Ferrit

To prove fraud under section 6653(b), respondent must establish, by clear and convincing evidence, that petitioners understated their income during the years in issue with specific intent to evade taxes they knew or believed they owed.