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involving an analysis of the law and application of the law to
relevant facts. Sec. 1.6662-4(d)(2), Income Tax Regs. There is
substantial authority for the tax treatment of an item if at the
time the return containing the item is filed or on the last day
of the taxable year to which the return relates, the weight of
the authorities supporting the treatment is substantial in
relation to the weight of authorities supporting contrary
treatment.17 Sec. 1.6662-4(d)(3)(i), (iv)(C), Income Tax Regs.
It is the taxpayer's responsibility to establish he is not
liable for the accuracy-related penalty imposed by section
6662(a). Rule 142(a); Tweeddale v. Commissioner, 92 T.C. 501,
505 (1989). Petitioners did not report any of the settlement
proceeds they received in 1991. We have found that a portion of
the proceeds is attributable to punitive damages and interest,
which are taxable under section 61. Therefore, the burden is on
petitioners to prove that there is substantial authority for
their reporting position.
Respondent pled in his answer that petitioners negligently
failed to report any portion of the settlement payment as gross
income for 1991 and, therefore, are liable for the section 6662
penalty for negligence or disregard of rules or regulations. See
sec. 6662(b)(1). This is a new matter; the burden of proof is
17 Petitioners timely filed their return for calendar year
1991 on Oct. 15, 1992, and the return for their short taxable
year 1992 on Mar. 15, 1993.
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