Lisa B. Williams - Page 13

                                       - 13 -                                         
          Internal Revenue Code.  See sec. 6662(c); sec. 1.6662-3(b)(1),              
          Income Tax Regs.  A taxpayer may avoid the application of the               
          accuracy-related penalty by proving that he or she acted with               
          reasonable cause and in good faith.  See sec. 6664(c).  Whether a           
          taxpayer acted with reasonable cause and in good faith is                   
          measured by examining the relevant facts and circumstances, and             
          most importantly, the extent to which he or she attempted to                
          assess the proper tax liability.  See Neely v. Commissioner, 85             
          T.C. 934 (1985); Stubblefield v. Commissioner, T.C. Memo. 1996-             
          537; sec. 1.6664-4(b)(1), Income Tax Regs.                                  
               Although there were numerous employees in the corporation,             
          only petitioner and Mr. Sullivan, the chief operating officer,              
          did not have their bonuses reported on a Form W-2.  Deductions              
          were claimed with respect to all of the bonuses paid by the                 
          corporation, including those paid to petitioner and Mr. Sullivan.           
          Petitioner has emphasized that she was a close personal friend of           
          Dr. Deland, who made the ultimate decisions regarding bonuses,              
          and petitioner has argued that the $25,000 and $35,000 payments             
          were gifts from Dr. Deland.                                                 
               For the 1993 tax year, petitioner and Mr. Williams’s joint             
          return was professionally prepared.  Petitioner contends that she           
          did not pay much attention to her Form W-2 for 1993 and simply              
          provided the documents received from various employers and payers           
          to the return preparer.                                                     

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