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legitimate business purpose. In Sanitary Farms Dairy, Inc., we
found that “The cost of a big game hunt in Africa does not sound
like an ordinary and necessary expense of a dairy business in Erie,
Pennsylvania, but the evidence in this case shows clearly that it
was and was so intended.” Id. at 467. Unlike here, in Sanitary
Farms Dairy, Inc., we were satisfied from the evidence in the
record that costs associated with the safari actually assisted in
the marketing of the product line of the business. Thus, Sanitary
Farms Dairy, Inc., is distinguishable from this case and offers no
support to petitioners’ cause.
In sum, we hold that WVI’s payments of petitioners’ expenses
for trips to Key West and Hawaii, as well as WVI’s payments for the
acquisition of the animal trophy collection, constitute
constructive dividends to petitioners.
Issue 4. Imposition of the Fraud or Accuracy-Related Penalty
We now address whether petitioners are liable for the fraud
penalty under section 6663(a) or alternatively the accuracy-related
penalty under section 6662(a). Section 6662(a) imposes an
accuracy-related penalty in an amount equal to 20 percent of the
portion of the underpayment attributable to negligence or disregard
of rules or regulations or to a substantial understatement of tax.
However, if section 6663(a) is applicable, a penalty in an amount
equal to 75 percent of the underpayment is imposed. Respondent
relies primarily on the record in its entirety and concludes that
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