Investment Research Associates - Page 542




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          activities, and the addition to tax for negligence or intentional            
          disregard of rules or regulations does not apply to underpayments            
          attributable to nonfraudulent activities.  Therefore, respondent             
          agrees that for all tax years prior to 1986, even though the                 
          negligence addition to tax was determined or asserted with                   
          respect to nonfraudulent activities, the negligence addition to              
          tax is not applicable if fraud is held applicable for the years              
          prior to 1986.  For tax years after 1985, the addition to tax for            
          fraud applies only to the underpayment in tax attributable to                
          fraud; therefore, a taxpayer may be held liable for the                      
          negligence addition to tax on underpayments attributable to                  
          nonfraudulent activities.  Thus, with respect to Kanter, the                 
          Court holds that the negligence addition to tax is not applicable            
          to Kanter's 1978 through 1984 tax years since the Court has held             
          that Kanter is liable for fraud for those years.  The Court,                 
          therefore, considers the negligence addition to tax relating to              
          nonfraudulent activities for Kanter's 1986 through 1989 tax                  
          years.  With respect to Ballard and Lisle, the parties agree that            
          the additions to tax asserted against them related only to the               
          Prudential issue.  Since the Court has held that Ballard and                 
          Lisle are subject to the fraud addition to tax with respect to               
          the Prudential activity, there are no additions to tax for                   
          negligence as to Ballard and Lisle which are to be considered by             
          the Court.                                                                   






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