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attributable to any substantial understatement of income tax.
Sec. 6662(b)(2). There is a “substantial understatement of
income tax” if the amount of the understatement exceeds 10-
percent of the tax required to be shown on the tax return or
$5,000. Sec. 6662(d)(1).
As previously stated, section 7491(c) requires the
Commissioner to carry the burden of production because he seeks
to impose the penalty. Higbee v. Commissioner, supra. Once the
burden of production is met, the taxpayer must come forward with
sufficient evidence that the penalty does not apply. Id. at 447.
Petitioner argues that the underpayment attributable to the
unreported 10-percent additional tax under section 72(t) was a
result of an “honest” mistake by his and Ms. Glenn’s tax return
preparer. Petitioner and Ms. Glenn reported a tax liability of
$86,293 on their 2001 tax return. Respondent determined that
petitioner and Ms. Glenn’s corrected tax liability was $102,877.
The difference is fully attributable to petitioner and Ms.
Glenn’s omission of the additional tax under section 72(t) of
$16,584. Respondent has satisfied his burden of showing that the
understatement of tax exceeds the greater of 10 percent of the
tax required to be shown on the return or $5,000.
Section 6664(c)(1) provides that the penalty under section
6662(a) shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer’s
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Last modified: May 25, 2011