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underpayment if it is shown that the taxpayer had reasonable
cause and acted in good faith. Sec. 6664(c).
Because this court proceeding arises in connection with an
examination commenced after July 22, 1998, respondent bears the
burden of producing sufficient evidence to support imposition of
the accuracy-related penalty; however, the burden remains on
petitioners to show that the reasonable cause exception applies.
See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001); Penn v. Commissioner, T.C. Memo. 2001-267.
As previously discussed, the undisputed evidence shows that
petitioners had at least $86,705 in unreported gross income from
gambling, as determined by reference to the $91,000 of gambling
winnings as understated in the notice of deficiency. Petitioners
have failed to substantiate gambling losses in excess of
unreported gambling gross income omitted from the notice of
deficiency. The net result is a substantial understatement of
tax as defined in section 6662(d)(1)(A).
In determining whether a taxpayer acted with reasonable
cause and in good faith, the most important factor is the extent
of the taxpayer's effort to assess the proper tax liability.
Sec. 1.6664-4(b)(1), Income Tax Regs. With respect to
petitioners’ 1996 gambling activities, four casinos issued
petitioners some 39 Forms W-2G, reporting aggregate gambling
winnings over $144,000–-an amount greater than petitioners’
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