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Respondent determined, in the alternative, that the section
6662(a) penalty applies. Taxpayers are liable for a penalty
equal to 20 percent of the part of the underpayment to which
section 6662 applies. Sec. 6662(a). Section 6662 applies to
an underpayment attributable to a substantial understatement
of income tax. Sec. 6662(b)(2). A substantial understatement
of income tax occurs when the amount of the understatement for
a taxable year exceeds the greater of 10 percent of the tax
required to be shown or $5,000. Sec. 6662(d)(1)(A).
Petitioner bears the burden of proving that it is
not liable for the accuracy related penalty. Rule 142(a).
The accuracy related penalty under section 6662(a) does not
apply to any portion of an underpayment if the taxpayer shows
that there was reasonable cause for such portion and that the
taxpayer acted in good faith. Sec. 6664(c)(1). We consider
whether the taxpayer acted with reasonable cause and in good
faith based on the facts and circumstances. Sec. 6664(c)(1).
We conclude that petitioner is not liable for the accuracy
related penalty under section 6662(a), because as stated above,
petitioner's allocation to the covenant not to compete was
reasonable, and petitioner acted in good faith.
To reflect the foregoing,
Decision will be entered
under Rule 155.
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