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Pork were members of a consolidated group. Sec. 1.1221-2(d)(1),
Income Tax Regs. They did not file, nor were they required to
file, consolidated returns for the tax year. Secs. 1501 and
1502; secs. 1.1221-2(d)(3), 1.1502-1(h), Income Tax Regs.
Therefore, the business transactions of Reis Ag and Grow Pork
cannot be attributed to Reis and from Reis to petitioner. We
find no exceptional circumstances which would cause us to ignore
the corporate entities and attribute the production of hogs to
petitioner. While it may have been easier for Reis to maintain
all the hedging transactions in one account under petitioner's
name, the hog futures transactions cannot be treated as hedging
transactions of petitioner. The disallowed loss of $6,305 is a
capital loss. Accordingly, we sustain respondent's
determination.
Section 6662(a) provides for an accuracy-related penalty in
the amount of 20 percent of the portion of an underpayment of tax
attributable to, among other things, negligence or disregard of
rules or regulations. Sec. 6662(a) and (b)(1). Section
6664(c)(1) provides that no penalty shall be imposed if it is
shown that there was reasonable cause for the underpayment and
that the taxpayer acted in good faith. The determination of
whether a taxpayer acted with reasonable cause and in good faith
depends upon the facts and circumstances. Sec. 1.6664-4(b)(1),
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Last modified: May 25, 2011