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Thus, petitioners have not met the requirements of section
274(d). Thus, we conclude that AIM may not deduct the coded
expenses of $1,254, $600, and $480.
Respondent conceded that the coded expenses of $600 and $480
are for lodging expenses of AIM’s employees other than the Bolers
and thus are not constructive dividends to petitioner. However,
we conclude that the coded expense of $1,254 is a constructive
dividend to petitioner because petitioners have not shown
otherwise.
I. Whether Petitioners Are Liable for the Accuracy-Related
Penalty Under Section 6662(a) for Negligence
Petitioners contend that they are not liable for the
accuracy-related penalty for negligence under section 6662(a)
because they reasonably relied on their accountants. They also
contend that they had an honest misunderstanding of the law as to
all issues.
Petitioners are not liable for the accuracy-related penalty
for negligence with respect to matters on which they prevailed
here. They are also not liable for the accuracy-related penalty
with respect to the $17,532 AIM claimed as costs of goods sold
because they are inexperienced in tax accounting matters and they
reasonably relied on the advice of two accountants on this issue.
We conclude, however, that petitioners were negligent with
respect to: (1) The disallowed interest deductions; (2) the
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