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Penalty
Year Deficiency Sec. 6662
1994 $9,614 $1,914
1995 11,855 2,356
1996 9,956 1,978
The issues for decision are:
1. Whether petitioners operated their Arabian show horse
activity for profit in 1994, 1995, and 1996. We hold that they
did.
2. Whether petitioners are liable for accuracy-related
penalties under section 6662(a) for substantial understatement of
tax for 1994, 1995, and 1996. We hold that they are not.
References to petitioner in the singular are to Harvey J.
Davis. Section references are to the Internal Revenue Code in
effect during the years in issue. Rule references are to the Tax
Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioners
Petitioners resided in Springfield, Missouri, when they
filed their petition.
1. Petitioner
Petitioner is an architect. From 1958 to 1965, he was a
partner with Johnson & Davis Architects.
In 1965, petitioner and a partner bought the patent rights
to a chemically reactive cement product. Petitioner and his
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