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petitioner’s underpayment attributable to the deduction of
compensation was due to negligence or disregard of rules or
regulations. See sec. 6662(b)(1). However, the penalty under
section 6662(a) shall not be imposed with respect to any portion
of an underpayment if there was reasonable cause for such portion
and the taxpayer acted in good faith. See sec. 6664(c)(1).
We find that petitioner’s attempt to deduct personal
expenses of Walter, or dividends paid to Barbara, constitutes
negligence or disregard of rules or regulations. The effort,
evidenced in the drafting of the Pension Agreement, to cast the
payments as compensation for services reflects an awareness of
the applicable tax principles. However, the fact that the
payments to Barbara satisfied Walter’s alimony obligations is
abundantly clear under the Settlement Agreement. Further,
petitioner has not argued reasonable cause or offered any other
argument against the application of the accuracy-related
penalties. Accordingly, we sustain respondent’s determinations.
To reflect the foregoing,
Decision will be entered
under Rule 155 with respect to
the deficiencies, and for
respondent with respect to the
accuracy-related penalties.
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Last modified: May 25, 2011