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Respondent determined a deficiency in petitioner’s Federal
income tax of $7,981 for the taxable year 2000, as well as an
accuracy-related penalty under section 6662(a) in the amount of
$1,596.
The issues for decision are:
(1) Whether petitioner was a shareholder in an S
corporation during 2000 such that petitioner is required to
report his pro rata share of the corporation’s income. We hold
that he was.
(2) Whether petitioner is liable for the accuracy-related
penalty under section 6662(a). We hold that he is not.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
At the time that the petition was filed, petitioner resided
in Auburn, Washington.
Petitioner first met Philip Turner (Mr. Turner) in 1993 when
they both worked at Modern Manufacturing, Inc. (Modern).2 In
June 1995, petitioner and Mr. Turner formed Union Machine, which
they later incorporated in the State of Washington on December
21, 1995. Union Machine’s principal business was manufacturing
2 Around that time, petitioner worked as a first quality
inspector and quality control officer. By trade, petitioner and
Mr. Turner are machinists.
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