Midwest Industrial Supply, Inc. - Page 10

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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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