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                    Year         Deficiency       I.R.C. sec. 6662                    
                    2002      $58,816             $11,763.20                          
                    2003           95,217              19,043.40                      
                    2004           87,442              17,488.40                      
          Unless otherwise indicated, all section references are to the               
          Internal Revenue Code in effect for the years in issue.                     
               After concessions by the parties, the sole issue for                   
          decision is whether petitioners are liable for the accuracy-                
          related penalties determined by respondent pursuant to section              
          6662 for substantial understatements of their Federal tax                   
          liability for the years in issue.                                           
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated, and the stipulated             
          facts are incorporated in our findings by this reference.                   
          Petitioners resided in California at the time they filed their              
          petition.  For purposes of trial only, this case was consolidated           
          with a related worker classification case at docket No. 12139-06.           
               The amounts of total tax liability that petitioners reported           
          on their income tax returns for the years in issue and the                  
          deficiencies determined by respondent, which amounts include                
          disallowed credits, for those years are as follows:                         
          Year       Tax on return      Corrected tax        Understatement           
          2002      $4,499              $61,219*            $58,816                   
          2003           5,769          100,326*                 95,217               
          2004      11,566              99,008                   87,442               
               * Includes credits disallowed by respondent for this year.             

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Last modified: March 27, 2008