Michael V. Domulewicz and Mary Ann Domulewicz - Page 9




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          than $30,447,106 as claimed, and that a series of alternative               
          accuracy-related penalties under section 6662 applied.  As to               
          these items, respondent determined in the FPAA that:  (1) The               
          basis of the property distributed by DIP was zero because DIP               
          failed to substantiate the basis and, alternatively, the outside            
          bases of DIP’s partners were not adjusted under section 752 on              
          account of the short sale liability; (2) DIP’s claimed short-term           
          capital loss and interest expense were disallowed for lack of               
          substantiation; (3) DIP was a sham and was disregarded, and all             
          transactions it engaged in were treated as engaged directly by              
          the partners; (4) under section 1.701-2, Income Tax Regs., DIP’s            
          partners were not treated as partners; (5) under section 1.701-2,           
          Income Tax Regs., contributions to DIP had to be adjusted to                
          reflect clearly the income of DIP and its partners; and (6) the             
          40-percent accuracy-related penalty under section 6662(a),                  
          (b)(3), (e), and (h) was imposed because any underpayment of tax            
          resulting from adjustment of DIP’s basis in the stock was due to            
          a gross valuation misstatement; the 20-percent accuracy-related             
          penalty under section 6662(a), (b)(1), and (c) was imposed                  
          because any underpayment of tax arising from the adjustment of              
          DIP’s basis was due to negligence or disregard of rules and                 
          regulations; or, alternatively, the 20-percent accuracy-related             
          penalty under section 6662(a), (b)(2), and (d) was imposed                  








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