- 26 -
We think the amount petitioner allocated to Grecco's
covenant not to compete was reasonable and that petitioner acted
in good faith. Thus, we find that respondent should have waived
the addition to tax for a substantial understatement of income
tax. Id. Accordingly, we do not sustain respondent's
alternative determination as to the addition to tax.
d. Section 6662(h)
With respect to tax returns due after December 31, 1989,
taxpayers are liable for a penalty equal to 20 percent of the
part of an underpayment attributable to a substantial valuation
misstatement. Sec. 6662(b)(3). A substantial valuation
misstatement occurs when the value of property claimed on the
return is 200 percent or more of the amount determined to be the
correct value. Sec. 6662(e)(1)(A). Taxpayers are liable for a
penalty equal to 40 percent of the part of the underpayment
attributable to a gross valuation misstatement. Sec. 6662(a),
(b)(3), (h)(1). A gross valuation misstatement occurs when the
value of property claimed on the return is 400 percent or more of
the amount determined to be the correct value. Sec.
6662(e)(1)(A), (h)(2).
The section 6662(h) penalty does not apply to petitioner for
its tax year ending June 30, 1990, because 400 percent of the
correct value of the covenant ($324,100) is $1,296,400, and
petitioner reported a value of $383,400.
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011