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868, 881 (5th Cir. 1995), affg. T.C. Memo. 1993-634; Cramer v.
Commissioner, 101 T.C. 225, 251 (1993), affd. 64 F.3d 1406 (9th
Cir. 1995); Ma-Tran Corp. v. Commissioner, 70 T.C. 158, 173
(1978); Pessin v. Commissioner, 59 T.C. 473, 489 (1972); Garcia
v. Commissioner, T.C. Memo. 1998-203, affd. without published
opinion 190 F.3d 538 (5th Cir. 1999).
The notice of deficiency issued to petitioners asserted
applicability of the section 6662(a) penalty on account of both
negligence and/or substantial understatement. (The notice also
referenced substantial valuation overstatement as an additional
alternative ground, see sec. 6662(b)(3), but since valuation was
not a focus of this case, we disregard the apparent boilerplate
reference.) Based upon our holdings above, the evidence has now
established that petitioners understated their taxes by more than
the greater of $5,000 or 10 percent of the tax required to be
shown. In addition, we observe that there exists no substantial
authority for deduction of unsubstantiated expenses and that
petitioners’ return disclosed no facts related to their claimed
expenses. Accordingly, respondent has satisfied the burden of
production under section 7491(c) with respect to the section
6662(a) penalty for substantial understatement. We also note,
for the sake of completeness, that petitioners’ demonstrated
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