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shown on the return, reduced by any rebate. Sec. 6662(d)(2)(A).
The term “substantial understatement” is defined as the greater
of 10 percent of the tax required to be shown on the return for
the taxable year, or $5,000. Sec. 6662(d)(1)(A). Also, the
amount of understatement is reduced to the extent it is
attributable to a position (1) for which there is substantial
authority, or (2) which the taxpayer adequately disclosed on his
return and for which there is reasonable basis. Sec.
6662(d)(2)(B). We do not find that either of these conditions
applies here. Accordingly, the base to which the accuracy-
related penalty would apply equals the full underpayment, or
$43,812 in this case.
The penalty may not be imposed with respect to an
underpayment if the taxpayer’s actions regarding it can be
justified by a reasonable cause and were in good faith. Sec.
6664(c)(1). Pertinent facts and circumstances determine whether
this exculpatory provision applies in a particular case. Sec.
1.6664-4(b)(1), Income Tax Regs.
Respondent bears the burden of production with respect to
the accuracy-related penalty. Sec. 7491(c). In order to meet
this burden, respondent must produce sufficient evidence
establishing that it is appropriate to impose this penalty. Once
respondent has done so, the burden of proof is upon petitioners
to establish reasonable cause and good faith. Higbee v.
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