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We decline petitioners’ invitation. Although we hold that Simco
is not liable for fraud, we do so because we find that John was
not the dominant shareholder of Simco and was not acting in
behalf of Simco when he sold scrap metal that belonged to the
corporation, retained the proceeds, and failed to disclose the
income to the corporation, its other shareholder and advisers, or
the IRS.
Accuracy-Related Penalty With Respect to Simco
In the alternative to fraud, respondent determined that
Simco was liable for the accuracy-related penalty under section
6662(a) and (b)(1). Respondent’s determinations are presumed
correct, and petitioners bear the burden of proving that the
penalty does not apply. See Rule 142(a); Bixby v. Commissioner,
58 T.C. 757, 791-792 (1972).
Section 6662(a) imposes a penalty in an amount equal to 20
percent of the portion of an underpayment of tax attributable to
negligence or disregard of rules or regulations. See sec.
6662(b)(1). The term “negligence” includes a failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue laws, and “disregard” includes any careless, reckless, or
intentional disregard of rules or regulations. See sec. 6662(c);
sec. 1.6662-3(b)(1) and (2), Income Tax Regs.
The penalty for negligence or disregard of rules or
regulations is inapplicable, however, to any portion of the
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