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Section 6661(a), which is applicable to petitioner's 1986, 1987, and
1988 tax years, imposes an addition to tax of 25 percent of any underpayment
attributable to a substantial understatement of income tax. In the case of a
corporate taxpayer, an understatement is substantial if it exceeds $10,000.
Sec. 6661(b)(1). An understatement shall be reduced to the extent that it
results from a reporting position for which substantial authority exists or to
the extent that the item giving rise to the understatement was adequately
disclosed on the return or on a statement attached to the return. Sec.
6661(b)(2)(B).
In light of our finding that petitioner's sponsorship was designed
primarily to benefit Mr. Vitale, we hold that no substantial authority exists
to support petitioner's reporting position. Nor was the deduction disclosed
adequately on the return. Therefore, we hold that petitioner is liable for
the section 6661(a) addition to tax.
Section 6662(a), which is applicable to petitioner's 1989 tax year,
imposes an accuracy-related penalty of 20 percent of any underpayment
attributable, inter alia, to (1) a substantial understatement of income tax
(at least $10,000 for most corporations) or (2) negligence or disregard of
rules or regulations. For the reasons described above, we find that the
underpayment was attributable to negligence or disregard of rules or
regulations. Therefore, we hold that petitioner is liable for the section
6662(a) accuracy-related penalty.
To reflect the foregoing,
Decision will be entered
for respondent.
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Last modified: May 25, 2011