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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
services.
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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