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No credible evidence refutes the income character of the
$151,000. Haas received the additional 8.26-percent stock
interest in DP that was valued at $151,000 and treated as
nonemployee compensation. Haas agreed to report and did report
the $151,000 on his and his wife’s 1993 joint Federal income tax
return as taxable income. Petitioners have not provided adequate
evidence to support the recharacterization of the $151,000 as
nontaxable income.
Under section 6662(a), a penalty is imposed equal to 20
percent of the portion of the underpayment that is attributable
to a substantial understatement of income tax (namely, an
understatement for a year in excess of 10 percent of the amount
required to be shown on the Federal income tax return or $5,000).
See sec. 6662(d)(1). However, if the taxpayer has substantial
authority for the tax return position, the penalty does not
apply. See sec. 6662(d)(2)(B)(i). We have disallowed the
$63,500 claimed deduction relating to consulting services
primarily on grounds of petitioners’ burden of proof. We believe
that petitioners, on the limited facts in evidence relating to
this issue, had a reasonable basis for claiming a current
ordinary deduction for the $63,500 relating to the consulting
services. We do not sustain the section 6662(a) penalty.
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