Mohan Roy, M.D., Inc. - Page 16

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               Because no evidence was introduced relating to the earnings            
          and profits of Roy, Inc., the entire amount of the expenses paid by         
          Roy, Inc. constitutes constructive dividends.  Rule 142(a).                 
          Issue 3. Accuracy-Related Penalties                                         
               The final issue for decision is whether the corporate and/or           
          the individual petitioners are liable for the accuracy-related              
          penalty, pursuant to section 6662, for negligence or disregard of           
          rules or regulations or substantial understatement of tax.                  
          Respondent determined a penalty for the corporate petitioner for            
          1991, 1993, and 1994, and a penalty for the individual petitioners          
          for each of the years in issue.  Petitioners generally assert a             
          reasonable cause defense.                                                   
               Section 6662 imposes a penalty equal to 20 percent of the              
          amount of the underpayment attributable to negligence or disregard          
          of rules or regulations or substantial understatement of tax.               
          "Negligence" means any failure to make a reasonable attempt to              
          comply with the provisions of the Internal Revenue Code, and                
          "disregard" means any careless, reckless, or intentional disregard.         
          Sec. 6662(c). A substantial understatement of tax means an                  
          understatement of tax which exceeds the greater of 10 percent of            
          the tax required to be shown on the tax return or $5,000.  Sec.             
          6662(d)(1)(A).                                                              








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