53
Mr. Munro and Mr. Clearman and the presence of an in-house
attorney.
Evaluation of whether, in this setting, petitioners Alondra
and Edco were negligent, or intentionally disregarded the rules
and regulations, is a factual inquiry. C.T.I. Inc. v.
Commissioner, T.C. Memo. 1994-82. Here, Alondra and Edco have
not given any credible explanation of what the payments for
management services were in fact compensation for. We are
particularly struck by the absence of explanation by petitioners
for Alondra's $900,000 payment. Under the circumstances,
petitioners have not met their burden of showing that they acted
reasonably in claiming the deductions whose disallowance we have
sustained. Indeed, they have not made such a showing with
respect to any such deductions. Consequently, all such
underpayments as we find for the corporate petitioners we treat
as being attributable to negligence, and the section
6653(a)(1)(A) and (B) additions to tax are imposed on them in
their entirety.
(b) Substantial Understatement
Respondent also determined that petitioner Alondra is liable
for the addition to tax for substantial understatement of income
tax liability pursuant to section 6661(a).26
26Also repealed effective for returns the due date for which
(determined without regard to extensions) is after Dec. 31, 1989.
OBRA 89 sec. 7721(c), 103 Stat. 2399. The current provisions for
returns due after that date are to be found in current secs.
6662(a), (b)(2), and (d).
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