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filed its 1989 tax return on March 23, 1990, 8 days after the due
date. The notice of deficiency also stated that Young & Young
was liable for: (1) A $637 addition to tax for delinquency under
section 6651(a)(1), and (2) a $2,549 accuracy-related penalty
under section 6662(a) because its underpayment of income tax was
due to a substantial understatement.
B. Young & Young's Introduction to the Prime Plan
Donald A. Waldman was the Youngs' tax adviser. In
December 1989, Mr. Waldman introduced the Youngs to the Prime
Plan, advising Howard Young that the plan provided life insurance
as well as tax deferral. Howard Young viewed the Prime Plan as a
"wise business investment for the company" because it provided
life insurance, which he needed at that time, and because of "the
tax deferment." Howard Young relied on Mr. Waldman in choosing
to participate in the Prime Plan and in reporting the tax
ramifications that flowed therefrom. Mr. Waldman was competent
to give an opinion on the Prime Plan.
C. Young & Young's Adoption of the Prime Plan
Young & Young joined the Prime Plan by executing an Adoption
Agreement dated and effective as of December 1, 1989, and by
making a $50,030 contribution to the Trust approximately 16 days
later. Young & Young's $50,030 contribution was applied to the
full accrual of DWB's for its Covered Employees ($42,526) and the
11(...continued)
I of subtitle A of the Code.
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