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Respondent has the burden of production under section 7491(c) and
must come forward with sufficient evidence that it is appropriate
to impose the penalties. See Higbee v. Commissioner, 116 T.C.
438, 446-447 (2001).
A taxpayer is liable for an accuracy-related penalty of 20
percent of any part of an underpayment attributable to, among
other things, a substantial understatement of income tax.11
There is a substantial understatement of income tax under section
6662(b)(2) if the amount of the understatement exceeds the
greater of either 10 percent of the tax required to be shown on
the return, or $5,000. Sec. 6662(a), (b)(1) and (2), (d)(1)(A);
sec. 1.6662-4(a), Income Tax Regs.
Respondent has met his burden of production with respect to
Mr. and Mrs. Hargrove’s and Mr. and Mrs. Breeding’s substantial
understatements of income tax for the relevant years. Mr. and
Mrs. Hargrove reported they owed income tax of $4,719 for 2000
and $4,123 for 2001.12 Respondent determined that they owed
$16,533 for 2000 and $12,620 for 2001. Mr. and Mrs. Hargrove
11Respondent determined in the alternative that Mr. and Mrs.
Hargrove and Mr. and Mrs. Breeding were liable for the accuracy-
related penalties for negligence or disregard of rules or
regulations under sec. 6662(b)(1) for the relevant years.
Because respondent has proven that petitioners substantially
understated their income tax for the relevant years, we need not
consider whether petitioners were negligent or disregarded rules
or regulations.
12None of petitioners’ returns for the relevant years was
introduced in evidence. We have used the amounts reflected in
the deficiency notice for the amounts petitioners reported on
their returns. We note there is a slight discrepancy between the
amounts we use and the amounts that petitioners stipulated, but
this difference is immaterial.
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