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In any case, we find petitioners’ assertion implausible.
Petitioners have not shown why patrons of Huntington Harbor would
know or care about the pursuit of a criminal prosecution against
Ammareh in Iran. Petitioners have not demonstrated how the
pursuit of that criminal matter was necessary to protect
petitioner’s business reputation in connection with Huntington
Harbor. Additionally, it does not appear that petitioner was
going to engage in any future business endeavors in Iran. Given
the circumstances in the past, it seems doubtful that he would
want to or would be able to do so.
Accordingly, petitioners are not entitled to deductions for
the legal expenses since they failed to show how these expenses
were necessary to protect petitioner’s business reputation with
respect to Huntington Harbor or any other business undertaking.
Accuracy-Related Penalty
Section 6662(a) imposes a penalty in an amount equal to 20
percent of the underpayment of tax attributable to one or more of
the items set forth in section 6662(b). Respondent asserts that
the underpayment of petitioners’ tax was due to negligence or
intentional disregard of rules or regulations, sec. 6662(b)(1),
and to a substantial understatement, sec. 6662(b)(2).
Petitioners bear the burden of proving that respondent’s
determination is erroneous. See Rule 142(a); Axelrod v.
Commissioner, 56 T.C. 248, 258-259 (1971).
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