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contributions to the Prime Plan, except for Young & Young which
may deduct $11 for 1989.16
3. Penalties
Respondent determined that each corporate petitioner was
liable for a penalty under section 6662(a) because it
substantially understated its Federal income tax. See sec.
6662(b)(2). As relevant herein, section 6662(a) imposes an
accuracy-related penalty equal to 20 percent of an underpayment
that is due to a substantial understatement of income tax. In
the case of a corporation, a substantial understatement exists if
its income tax was understated by the greater of 10 percent of
the tax required to be shown on the return or $10,000. Sec.
6662(d)(1)(A). For this purpose, tax is not understated to the
extent that the treatment of an item is based on substantial
authority or is adequately disclosed in the return or in a
statement attached to the return. Sec. 6662(d)(2)(B).
Substantial authority exists when the weight of authority
supporting the treatment of an item is substantial when compared
to the weight of authority supporting contrary treatment. Sec.
1.6662-4(d)(3)(i), Income Tax Regs. To determine whether
substantial authority is present, all authorities which are
16 Respondent determined, and petitioners do not dispute,
that Young & Young was a qualified personal service corporation
taxable at a single rate of 34 percent. See sec. 11(b)(2).
Accordingly, Young & Young's $11 deduction reduces its deficiency
by $4.
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