- -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.Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Next
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