- 19 -
the proper tax liability. Stubblefield v. Commissioner, supra;
sec. 1.6664-4(b)(1), Income Tax Regs.
Respondent has met his burden of production with respect to
the accuracy-related penalty under section 6662(a). After
sustaining the determinations made by respondent in regard to
petitioners’ 1999 Federal income tax return, petitioner is liable
for a deficiency in excess of $25,000. As such, petitioner is
liable for an accuracy-related penalty attributable to a
substantial understatement of tax.
In regard to the section 6664 exception, we find that
petitioners did not act with reasonable cause and in good faith.
Petitioner Brody, who has a background in accounting, prepared
the 1999 corporate return for KOA and the 1999 tax return for
petitioners. Petitioner DeClerk’s car depreciation expense was
claimed twice on the 1999 tax return, once as part of their
itemized deductions on Schedule A and again as a deduction on her
Schedule C. Petitioners claimed on their 1999 tax return various
deductions associated with a purported loan between KOA and
petitioners; however, KOA did not report any loans from
shareholders on its 1999 corporate return. Based upon these
facts and circumstances, and indeed the entire record, we find
that petitioners did not take reasonable steps to comply with
reporting of income and deductions and did not act in good faith.
Accordingly, we sustain respondent’s determination with respect
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011