O.S.C. & Associates, Inc. d.b.a. Olympic Screen Crafts - Page 10

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          Dividends, on the other hand, are merely distributions of excess            
          earnings to shareholders in proportion to their stock holdings.             
               Petitioner's plan provides that every dollar of gross                  
          profits in excess of the hypothetical gross profit goes directly            
          to Messrs. Blazick and Richter while petitioner receives nothing.           
          The allocations are measured by the amount of petitioner's excess           
          gross profits and not by the value of Messrs. Blazick's and                 
          Richter's contributions to petitioner.  We also note that the               
          adjustments (i.e., relating to bad debts, inventory spoilage,               
          production rerun costs, and inventory shortages) made to the                
          allocations merely reduce the distributions to Messrs. Blazick              
          and Richter without direct relation to the value of their                   
               Accordingly, we conclude that the plan allocations were not            
          made with compensatory intent and thus did not constitute                   
          compensation for services.  As a result, we sustain respondent's            
          determination for each year.                                                
          II.  Negligence Penalty                                                     
               Section 6662(a) imposes an accuracy-related penalty in an              
          amount equal to 20 percent of the portion of any underpayment to            
          which the section applies.  The section applies to, among other             
          items, the portion of an underpayment attributable to negligence            
          or disregard of rules or regulations.  Sec. 6662(b)(1).                     
          Negligence has been defined as the lack of due care or failure to           
          do what a reasonable and ordinarily prudent person would do under           

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