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Accuracy-Related Penalty
In the notice of deficiency, respondent determined that
petitioners were liable for the accuracy-related penalty under
section 6662(a) “due to substantial understatement of tax”.
Section 6662(a) imposes a penalty of 20 percent of the portion of
the underpayment which is attributable to any substantial
understatement of income. See sec. 6662(b)(2). There is a
substantial understatement of income tax for any year if the
amount of the understatement exceeds the greater of 10 percent of
the tax required to be shown on the return or $5,000. See sec.
6662(d)(1). Consequently, due to our holdings on the other
issues, if the Rule 155 computation does not indicate that
petitioners’ understatement of tax exceeded the greater of 10
percent of the amount of tax required to be shown on the return
or $5,000, petitioners will not be liable for the section 6662
accuracy-related penalty due to substantial understatement of
tax.
In the alternative, counsel for respondent raised in her
trial memorandum the issue that petitioners negligently failed to
report the income from Ortega and, therefore, are liable for the
section 6662 penalty for negligence or disregard of rules or
regulations. Where respondent raises a new issue after the
issuance of the notice of deficiency, respondent bears the burden
of proof. See Rule 142(a).
Section 6662(a) imposes a penalty of 20 percent on the
portion of the underpayment which is attributable to negligence
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Last modified: May 25, 2011