McDonough

MEMORANDUM *

Gary McDonough appeals the tax court’s order upholding the Commissioner of Internal Revenue’s imposition of accuracy-related penalties for his underpayment in tax for the years 1989 and 1991. We reverse the gross valuation misstatement penalty for 1989, affirm the negligence penalty for 1991, and remand to the tax court for a determination of whether the negligence penalty should apply to the 1989 return.

I

Because the tax court in the partnership level proceeding for Timeshare Breeding Services 1989-1 determined all deductions taken by the partners were invalid in full, McDonough’s underpayment in tax was “attributable to” an unwarranted deduction, not overvaluation of an asset. See Keller v. Comm’r, No. 06-75441, at 12-13. Accordingly, the tax court’s decision upholding the 40 percent gross valuation misstatement penalty under 26 U.S.C. § 6662 (h) was erroneous.

II

The tax court did not err in upholding the 20 percent negligence penalty imposed on McDonough for tax year 1991 under 26 U.S.C. § 6662 (b)(1). We have previously upheld the same penalty against other Hoyt investors. See Hansen v. Comm’r, 471 F.3d 1021, 1028-33 (9th Cir.2006). While McDonough may…