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determination of whether the taxpayer acted with reasonable
cause and in good faith depends on the pertinent facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
As a general rule, the taxpayer bears the burden of
proving that the taxpayer is not liable for the accuracy-
related penalty. See Compaq Computer Corp. v. Commissioner,
113 T.C. 214, 226 (1999). Effective for court proceedings
arising in connection with examinations commencing after July
22, 1998, section 7491(c) provides that the Commissioner shall
have the burden of production with respect to the liability of
any individual for any penalty. However, the Commissioner’s
burden does not extend to whether the taxpayer acted with
reasonable cause and in good faith; rather, it is the
taxpayer’s responsibility to raise that defense. See H. Conf.
Rept. 105-599, 1998-3 C.B. 747, 995, 996.
As previously discussed, section 7491 has no application
to the taxable year 1995, but it does apply to the taxable year
1996.
We turn now to the merits of the issue.
Negligence often takes the form of an understatement of
income or an overstatement of deductions. See Healey v.
Commissioner, T.C. Memo. 1996-260, and cases cited therein.
Understatement of income or overstatement of deductions may
reflect the inadequacy of the taxpayer's records, which is, of
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