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petitioner was availed of for the purpose of evading the income
tax on shareholders and is limited to accumulating, without
imposition of accumulated earnings tax, no more than $250,000.
III. Whether Petitioner Is Liable for Accuracy-Related Penalties
Under Section 6662(a) for 1995 and/or 1996
Section 6662(a) imposes an accuracy-related penalty if any
portion of an underpayment is attributable to negligence or
disregard of rules or regulations or any substantial
understatement of tax. A substantial understatement for a
corporation is an understatement that exceeds the greater of 10
percent of the tax required to be shown on the return or $10,000.
For 1995 and 1996, petitioner’s understatement may exceed the 10-
percent or $10,000 threshold. The penalty will not apply to any
portion of an underpayment for which there was reasonable cause
for the position taken and the taxpayer acted in good faith. See
sec. 6664(c).
Respondent, focusing on the reasonable compensation
question, contends that the Valentes did little or nothing to
earn the $240,435 and $460,000 salaries they were paid. Although
we have concluded that the value of their services was less than
8(...continued)
matters, no steps had been taken or evidence presented that
corroborated these matters as established or reasonable needs.
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