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C. Whether Petitioner Is Liable for the Penalty Under Section
6662 for Substantial Understatement
Respondent determined that petitioner is liable for the
accuracy-related penalty for substantial understatement for
fiscal years 1992 and 1993 under section 6662.
Taxpayers are liable for a penalty equal to 20 percent of
the part of the underpayment attributable to negligence or
substantial understatement of tax. Sec. 6662(a), (b)(1) and (2).
A substantial understatement of income tax occurs when the amount
of the understatement for a taxable year exceeds the greater of
10 percent of the tax required to be shown on the return or
$10,000 in the case of a corporation. Sec. 6662(d)(1)(A). The
accuracy-related penalty does not apply to any part of an
underpayment if the taxpayer shows that there was reasonable
cause and that the taxpayer acted in good faith. Sec.
6664(c)(1). Reliance on the advice of a professional, such as an
accountant, may constitute reasonable cause if, under all the
facts and circumstances, that reliance is reasonable and the
taxpayer acted in good faith. Sec. 1.6664-4(c), Income Tax Regs.
Respondent contends that petitioner did not have substantial
authority or reasonable cause for deducting the compensation paid
to Eberl because petitioner's tax advisers were not executive
compensation specialists and because they did not advise
petitioner that the amounts it actually paid Eberl were
reasonable compensation. We disagree.
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