- 8 -
allowed for an unpaid expense that arises from a transaction that
is not bona fide. We find that the Real McCoy’s alleged
liability did not arise from a bona fide arm’s-length
transaction. Rather, as the record reveals, the liability arose
from a dubious transaction carried out in petitioner’s own mind
and is not supported by economic reality. Petitioner’s attempt
to use differing methods of reporting income in order to obtain
this artificial deduction will not be permitted.
For the above reasons, we hold that petitioners are not
entitled to deduct the $15,000 as an accrued business expense
under section 162. We, therefore, do not have to decide whether
their method of accounting for that deduction clearly reflects
income.
We next consider whether petitioners are liable for the
section 6662(a) accuracy-related penalty asserted against them.
We hold that they are.
Section 6662 imposes a penalty equal to a 20 percent portion
of the underpayment attributable to, inter alia, negligence or
disregard of rules or regulations. "Negligence" includes failure
to make a reasonable attempt to comply with the law, and the term
"disregard" includes careless, reckless, or intentional
disregard. Sec. 6662(c). The penalty does not apply to any
portion of an underpayment for which there was reasonable cause
and with respect to which the taxpayer acted in good faith. Sec.
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011