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Petitioner, in order to prevail, must prove respondent’s
determination wrong. See Rule 142(a).8 Petitioner argues in
part that it is not liable for the accuracy-related penalty
because it did not exploit its relationship with Beiner in paying
him the compensation that it did. Respondent rebuts that
petitioner is liable for the accuracy-related penalty because it
distributed money to Beiner as compensation without any regard to
the value of his services and without any formal compensation
plan.
We agree with petitioner that it is not liable for the
accuracy-related penalty. That penalty does not apply to an
underpayment to the extent that the taxpayer exercised ordinary
business care and prudence as to the underpayment. Sec. 6664(c);
secs. 1.6662-3(a), 1.6664-4(a), Income Tax Regs.; see also United
States v. Boyle, 469 U.S. 241 (1985). The record persuades us
that petitioner exercised ordinary business care and prudence as
to its deduction of the unreasonable compensation of $180,260.
Beiner, on behalf of petitioner, met with Gallardo each December
to set the bonus that petitioner paid to Beiner during that year,
and petitioner generally ascertained that bonus by taking into
account certain factors including Beiner’s work during the year.
8 Pursuant to sec. 7491(c), the Commissioner bears the
burden of production in this Court “with respect to the liability
of any individual for any [accuracy-related] penalty” under sec.
6662(a). Because petitioner is not an individual, that section
has no applicability here.
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