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individual, an understatement is substantial if it exceeds the
greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6662(d)(1)(A).
An understatement is reduced to the extent attributable to
an item: (1) For which there existed substantial authority for
the taxpayer’s treatment thereof, or (2) with respect to which
relevant facts were adequately disclosed in the return or in a
statement attached thereto and there existed a reasonable basis
for the taxpayer’s treatment of the item. Sec. 6662(d)(2)(B).
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment if it is shown that there
was reasonable cause for such portion of the underpayment and
that the taxpayer acted in good faith with respect to such
portion. Sec. 6664(c)(1); Jelle v. Commissioner, 116 T.C. 63, 72
(2001). In general, the determination of whether a taxpayer
acted with reasonable cause and in good faith depends upon the
pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income
Tax Regs. The crucial factor is the extent of the taxpayer's
effort to assess the proper tax liability. Id.
Petitioner bears the burden of proving that respondent's
determination is erroneous. Rule 142(a); Jelle v. Commissioner,
supra at 72.
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