- 8 - that the corporations were devoid of substance or were merely Mr. Welter’s alter egos; indeed, the evidence points to the contrary. Thus, while it may have been more convenient for Mr. Welter to maintain the existing brokerage accounts in his own name following the incorporation of petitioners’ farming operations, the commodities transactions he engaged in through those accounts during the years at issue do not qualify as hedging transactions within the meaning of former section 1.1221-2(b). It follows that gains and losses attributable to such transactions are capital in nature. We therefore sustain respondent’s adjustments with respect to Mr. Welter’s commodities trading activity. II. Penalties Section 6662 imposes a penalty equal to 20 percent of the portion of any underpayment which is attributable to, among other things, a substantial understatement of income tax. Sec. 6662(a) and (b)(2). An understatement of income tax is deemed substantial if it exceeds the greater of: (1) 10 percent of the tax required to be shown on the return for the year, or (2) $5,000. Sec. 6662(d)(1)(A). For these purposes, the amount of an understatement is reduced to the extent it is attributable to a position (1) for which there is substantial authority, or (2) which the taxpayer adequately disclosed on his return and for which there is a reasonable basis. Sec. 6662(d)(2)(B). In addition, the section 6662 penalty does not apply to the extentPage: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011