Morgan L.Lucid and Mary J. Lucid - Page 24

                                       - 24 -                                         

          equipment and yachts during 1990 and 1991 with the bona fide                
          objective of making a profit.                                               
               Respondent also determined accuracy-related penalties under            
          section 6662(a) for 1990 and 1991.  Section 6662(a) provides for            
          a penalty of 20 percent of any portion of the underpayment                  
          attributable to the taxpayer's negligence or disregard of the               
          rules or regulations.  Sec. 6662(a).                                        
               Petitioners contend that they are not liable for the penalty           
          because they had substantial authority for their deductions.                
          They argue, generally, that the weight of the authorities                   
          supports their position that their yacht activity was carried on            
          for profit.  Specifically, petitioners rely on Pryor v.                     
          Commissioner, T.C. Memo. 1991-109.  In Pryor, we found that the             
          taxpayer was engaged in his sailboat charter activity with a                
          profit motive in part because he carried on the activity in a               
          business like manner.  He made a written 12-year projection that            
          was essentially a cash-flow analysis before entering into the               
          activity.  He also anticipated appreciation in the residual value           
          of his sailboats.  However, a portion of the taxpayer's losses              
          were attributable to unanticipated expenses of repairs to his               
          sailboats.                                                                  
               In contrast, petitioners here possessed no written business            
          plan.  Their expectations of a profit from their activity were              
          based more on their own self-serving and unrealistic                        
          expectations.  They did not consult with others in yacht and                
          boating equipment sales.  Petitioners did not attempt to assuage            


Page:  Previous  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  Next

Last modified: May 25, 2011