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all Rule references are to the Tax Court Rules of Practice and
Procedure.
After concessions,1 the remaining issues for decision are:
(1) Whether petitioner Hood’s Institutional Foods, Inc.
(HIF), may deduct legal fees it paid to defend its sole
shareholder, petitioner Lenward C. Hood, against criminal tax
evasion and false declaration charges that arose from the tax
reporting for Mr. Hood’s sole proprietorship, the business of
which was later assumed by HIF. We hold that it may not.
(2) Whether petitioners Lenward C. Hood and Barbara P. Hood
must include in income the amount of such legal fees paid by HIF
during calendar year 1991. We hold that they must.
(3) Whether HIF is liable for the section 6662(a) accuracy-
related penalty with respect to the deduction of legal fees. We
hold that it is not liable.
FINDINGS OF FACT
At the time of the filing of the petitions, petitioners
Lenward C. Hood and Barbara P. Hood resided in Ft. Washington,
1 Petitioner Hood’s Institutional Foods, Inc. (HIF),
concedes that it is not entitled to a $2,442 deduction claimed in
1991 for vehicle expenses paid on behalf of Mrs. Hood and that
the resulting underpayment is subject to a sec. 6662(a) penalty.
Petitioners Lenward C. and Barbara P. Hood concede that their
taxable income should be increased by $1,206 in 1991 due to a
constructive dividend from HIF representing Mrs. Hood’s vehicle
expenses and that the resulting underpayment is subject to a sec.
6662(a) penalty.
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