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percent of the tax required to be shown in the 1999 joint return
or $5,000. See sec. 6662(d)(1)(A). On the record before us, we
find that respondent has satisfied respondent’s burden of produc-
tion under section 7491(c) with respect to the accuracy-related
penalty in this case.
Although petitioners do not dispute that Windermere paid
nonemployee compensation of $21,891.95, and not $1,892, to Mr.
Larson during 1999 and that there is a substantial understatement
of tax for 1999 under section 6662(d), it is petitioners’ posi-
tion that they are not liable for the accuracy-related penalty
under section 6662(a). That is because, according to petition-
ers, they “used reasonable care in the preparation of their tax
returns” and “should not be penalized as allowed by Sec.
6664(c)(1).” In support of their position, petitioners contend,
inter alia:
Larson was paid on an hourly basis for work performed
at Windermere and the number of hours varied from week
to week throughout the year. The hours spent at
Windermere were few initially and gradually increased.
Windermere and Larson agreed to transition Larson from
an hourly consultant to an employee to allow him to
participate in their medical plan as soon as he was
committing sufficient hours to them to allow for his
inclusion in their medical plan.
This conversion from Consultant to Employee was
done approximately one year prior to his preparing this
1999 tax return in April of 2000. It would not be
reasonable to assert, as the Respondent has, that the
exact date and the proportions of time spent on
Windermere activities versus unpaid hours at Telepad
would have been so precisely and permanently committed
to memory, that they could be recalled one year later.
Larson relied solely on the Form 1099 data provided by
Windermere. Adding to the confusion was a form W-2
from Windermere which Petitioners assumed included the
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