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Taxpayers are liable for an accuracy-related penalty in the
amount of 20 percent of the portion of an underpayment of tax
attributable to any substantial understatement of income tax.
Sec. 6662(a) and (b)(2). A "substantial understatement" is an
understatement for the taxable year exceeding the greater of 10
percent of the proper tax or $5,000. Sec. 6662(d)(1)(A). No
penalty will be imposed with respect to any portion of any
underpayment if it is shown that there was a reasonable cause for
such portion and that the taxpayer acted in good faith with
respect to such portion. Sec. 6664(c). This determination is
based on all the facts and circumstances. Sec. 1.6664-4(b)(1),
Income Tax Regs.
Section 7491(c) imposes on respondent the burden of
producing evidence to show that the section 6662(a) penalty is
appropriate, but respondent need not produce evidence regarding
reasonable cause. Higbee v. Commissioner, supra at 446-447.
The Court has sustained respondent's determination of the
deficiencies for both years. Petitioners' understatements of tax
exceed the greater of 10 percent of the proper tax or $5,000 for
each year. The Court finds that respondent has satisfied the
burden of production with respect to the accuracy-related
penalties under section 6662(a). Petitioners presented no
evidence indicating reasonable cause for the understated income.
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Last modified: May 25, 2011