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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
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