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penalty is properly imposed for each of the taxable years at
issue in these dockets.
Petitioners contend that they are not liable for the
substantial understatement penalty because they did not
substantially understate their income tax liabilities. ECI
separately alleges that “the underpayment of tax after all agreed
adjustments is less than $10,000.” (Emphasis added.) Rather
than point out all of petitioner’s errors in making this
statement, we defer to the Rule 155 computation for resolution of
ECI’s liability.
The Cordes children24 and CFC claim that (1) they did not
understate their income tax and, alternatively, (2) they relied
on their financial adviser/return preparer for correct and proper
tax return preparation and that such reliance absolves them of
liability for the penalty. As to their first argument, to the
extent the Rule 155 computation discloses a substantial
understatement as defined in section 6662(d)(1), petitioners’
primary argument fails. If the Rule 155 computation discloses no
substantial understatement, then no accuracy-related penalty is
proper as to that petitioner for that taxable year.
24We have found that the Cordes children did not receive
constructive dividends, and it appears that the Rule 155
computation will demonstrate that they did not substantially
understate their respective income tax liabilities. We
nevertheless address the accuracy-related penalties as they
relate to these petitioners, in the unlikely event that the Rule
155 computation does demonstrate a substantial understatement.
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