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(c) Penalties.--Notwithstanding any other
provision of this title, the Secretary shall have the
burden of production in any court proceeding with
respect to the liability of any individual for any
penalty, addition to tax, or additional amount imposed
by this title. [See also Internal Revenue Service
Restructuring & Reform Act of 1998, Pub. L. 105-206,
sec. 3001(c), 112 Stat. 685, 727, regarding effective
date.]
Although the record in this case does not reveal when the
examination of petitioners’ 1996 return began, respondent asserts
that the burden is not placed on him under section 7491(a) with
respect to the income adjustments at issue and that respondent
has met his burden of production under section 7491(c) with
respect to the penalties. We agree.
As regards the adjustments to cost of goods sold and
business expenses, and as further explained below, petitioners
have failed to offer substantiation for and/or maintain adequate
records concerning the disallowed amounts. Hence, the
prerequisites of section 7491(a)(2) for placing the burden on
respondent as to these items have not been met. See also Higbee
v. Commissioner, 116 T.C. 438, 441 (2001); Blodgett v.
Commissioner, T.C. Memo. 2001-147; H. Conf. Rept. 105-599, at 241
(1998), 1998-3 C.B. 747, 995.
With respect to the accuracy-related penalty, the
Commissioner satisfies the section 7491(c) burden of production
by “[coming] forward with sufficient evidence indicating that it
is appropriate to impose the relevant penalty” but “need not
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