- 42 -
1990 taxable income was increased by $100,000 and $56,739,
respectively. The notice stated that N.L. Booth's contribution
to the Prime Plan was governed by subpart D. The notice also
stated that N.L. Booth was liable for $6,800 and $4,377 in
accuracy-related penalties under section 6662(a) for the
respective years because its underpayments of income tax were due
to substantial understatements. N.L. Booth filed timely 1989 and
1990 tax returns.
B. N.L. Booth's Introduction to the Prime Plan
Barclay D. Schultz was N.L. Booth's insurance agent for the
Prime Plan. On July 17, 1990, Mr. Schultz contacted Prime about
N.L. Booth's possible participation in the Prime Plan. Sixteen
days later, Joseph P. Waters, N.L. Booth's certified public
accountant, furnished N.L. Booth with computations of projected
earnings from participating in the Prime Plan. Robert and John
Booth (collectively, the Booths), individually and in their
capacity as officers of N.L. Booth, relied upon competent and
informed tax and investment advisers before joining the Prime
Plan and in reporting the tax ramifications that flowed
therefrom.
C. N.L. Booth's Adoption of the Prime Plan
N.L. Booth joined the Prime Plan by executing an Adoption
Agreement dated and effective as of July 31, 1990, and by
contributing $25,030 to the Trust 37 days later. N.L. Booth was
required to make a remaining contribution of $75,000 to the Trust
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