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In summary, petitioner has not shown that he engaged
in his activity with respect to the Cloudia with an actual
and honest objective of making a profit. Accordingly, we
find on the basis of all of the facts and circumstances of
this case that petitioner's activity with respect to the
Cloudia is an activity not engaged in for profit and is
subject to the limitation on deductions imposed by section
183.
We note that the notice of deficiency refers to the
application of section 183 as respondent's "alternative
position". The notice of deficiency also suggests that
the adjustment with respect to the Cloudia would be
computed differently under section 183 than the adjustment
determined in the notice. For this reason, the Court will
enter decision in this case under Rule 155.
Accuracy-Related Penalty
Respondent determined that petitioner’s underpayment
of income tax for 1990 was due to negligence or disregard
of rules or regulations, and that he is liable for the
accuracy-related penalty under section 6662(a). Petitioner
bears the burden of proving that respondent's determination
is wrong. Rule 142(a).
Section 6662(a) imposes an accuracy-related penalty
equal to 20 percent of the portion of the underpayment
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