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Respondent's determinations are presumed correct, and petitioner
bears the burden of proving that the penalties do not apply.
Rule 142(a); Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972).
Section 6662(a) imposes a penalty in an amount equal to 20
percent of the portion of an underpayment of tax attributable to
any substantial understatement of income tax. Sec. 6662(b)(2).
An understatement of tax is substantial if it exceeds the greater
of 10 percent of the tax required to be shown in the return or
$5,000. Sec. 6662(d)(1)(A). No penalty under section 6662(a) is
imposed, however, with respect to any portion of an underpayment
if there was reasonable cause for such portion and the taxpayer
acted in good faith with respect thereto. Sec. 6664(c)(1).
Petitioner contends that there was reasonable cause for the
tax treatment of the items at issue because the deductions
claimed by Lakeview were based on the advice of a certified
public accountant (C.P.A.). The determination of whether a
taxpayer acted with reasonable cause and in good faith is made on
a case-by-case basis, taking into account all the relevant facts
and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. A
taxpayer may demonstrate reasonable cause if he can show that he
relied in good faith on a qualified adviser after full disclosure
of all necessary and relevant information. Jackson v.
12(...continued)
event, petitioner’s claim of reasonable cause under sec.
6664(c)(1), discussed infra, would eliminate the negligence
penalty under sec. 6662(b)(1) to the same extent as the penalty
for substantial understatement under sec. 6662(b)(2).
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