- -35
Based on the record, we find that the amount of Mrs.
Penalba's compensation attributable to production was de minimis.
We, therefore, conclude that 75 percent of the amount of
reasonable compensation we have determined for Mr. Penalba is
subject to the provisions of section 263A, but that none of Mrs.
Penalba's compensation is subject to the provisions of section
263A.
The final issue is whether petitioner is liable for an
accuracy-related penalty pursuant to section 6662(a). Section
6662(a) imposes an accuracy-related penalty of 20 percent on any
portion of an underpayment of tax which is attributable to items
set forth in section 6662(b). Respondent contends that either
negligence or substantial understatement of tax applies in the
instant case under section 6662(b)(1) and (2).
Negligence includes any careless, reckless, or intentional
disregard of rules and regulations, any failure to make a
reasonable attempt to comply with the provisions of the law, and
any failure to exercise ordinary and reasonable care in the
preparation of a tax return. Zmuda v. Commissioner, 731 F.2d
1417, 1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982).
Section 6662(b)(2) specifies as one of those items "Any
substantial understatement of income tax". An understatement is
substantial if it exceeds the greater of 10 percent of the tax
required to be shown on the return, or, for a corporation,
$10,000.
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