- 30 -
We therefore find that the rents petitioner paid on the remaining
properties did not exceed the fair market rental values of the
properties.
III. Penalties
Respondent argues that petitioner should be liable for a 20-
percent accuracy-related penalty by reason of petitioner’s
negligence under section 6662(a)(1). Respondent claims that the
magnitude of the discrepancy between the rent paid and the fair
market rental value of the properties establishes negligence.
Respondent offers no other evidence of negligence than the
magnitude of the discrepancy.12
Respondent argues that a negligence penalty is mandated
where the taxpayer fails to offer credible independent evidence
11(...continued)
$140,000, $250,000, and $260,000, respectively). Even using a
13-percent “capitalization” rate would result in values of
$410,769, $415,384, and $426,923 for Mosquito Road, Roseville
Road and White Rock, respectively. Under any scenario, Mr.
McIntosh’s “estate-planning” appraisal substantially undervalued
the properties.
12In connection with additions to tax and penalties, sec.
7491(c) places a burden of production on the Commissioner in
cases involving examinations commenced after July 22, 1998.
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001, 112 Stat. 726. Neither party offered
evidence to show when the audit was commenced. However,
respondent claimed in his pretrial memorandum that the audit was
commenced before July 23, 1998, and petitioner in its opening
brief appeared to accept the burden of proof. Whether sec.
7491(c) applies here is irrelevant because petitioner is entitled
to prevail on a preponderance of the evidence.
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