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petitioner was compensation under the services contract and is
subject to self-employment tax.
Accuracy-Related Penalty
Respondent contends that petitioners are liable for an
accuracy-related penalty under section 6662(a). Respondent has
the burden of production under section 7491(c) and must come
forward with sufficient evidence that it is appropriate to impose
the penalty. See Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001).
Under the narrow circumstances of this case, we hold that
petitioners are not liable for the accuracy-related penalty.
Petitioners relied on the suggestion of Judge Gilbert and on
their attorney’s advice to include a claim for personal injury.
Petitioner accepted less in settlement of his claims than he
hoped for, after a way to avoid tax on the proceeds was suggested
by Judge Gilbert. Respondent does not contest the assertion that
Judge Gilbert suggested the form of the settlement agreement.
Petitioner was told that structuring the settlement to include a
claim for personal injury would relieve him of his tax liability.
Based on our review of the record, we conclude that petitioners
are not liable for the accuracy-related penalty imposed under
section 6662.
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