Ali Motaghayer - Page 3




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               Respondent determined a deficiency of $13,129 in, and a                
          section 6662(a) penalty of $2,625.80 with respect to,                       
          petitioner’s 1995 Federal income tax.                                       
               The issues for decision are:  (1) Whether, and if so to what           
          extent, petitioner underreported his 1995 income; (2) whether any           
          unreported income is subject to the tax imposed by section 1401;            
          and (3) whether any underpayment of tax required to be shown on             
          petitioner’s 1995 Federal income tax return is due to negligence.           
          Background                                                                  
               Some of the facts have been stipulated and are so found.               
          At the time the petition was filed, petitioner resided in                   
          Saratoga, California.                                                       
               Petitioner moved to the United States from Iran in 1985.  In           
          1991, petitioner, his brothers Majeed and Nima Motaghayer, and              
          his sister Mehri Motaghayer formed Submarine 21 Sandwiches &                
          Salads (Submarine 21), a corporation that elected to be taxed               
          under Subchapter S of the Internal Revenue Code.  Petitioner and            
          his siblings were equal shareholders in Submarine 21.                       
               Submarine 21 owned and operated a sandwich shop in San Jose,           
          California.  During the year in issue, the shop was open seven              
          days a week from approximately 11 a.m. until 9 p.m.  Petitioner             
          was the manager of the shop.  Typically, he worked there 6 to 7             
          days a week.  Aside from his managerial responsibilities, his               
          duties at the shop also consisted of taking orders from customers           






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