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amount of the understatement exceeds the greater of either 10
percent of the tax required to be shown on the return for the
taxable year or $5,000. Sec. 6662(d)(1)(A).
The penalties provided for in section 6662 are not imposed
on any portion of an underpayment if it is shown that there was
reasonable cause for such portion and the taxpayer acted in good
faith with respect to that portion. Sec. 6664(c)(1); sec.
1.6664-4(b), Income Tax Regs. Whether the taxpayer has acted
with reasonable cause and in good faith is determined by relevant
facts and circumstances, including the taxpayer’s own efforts to
assess his proper tax liability. Sec. 6664(c); Stubblefield v.
Commissioner, T.C. Memo. 1996-537.
Petitioners conceded that they are not entitled to a claimed
deduction in 1995 of $8,532. Petitioners failed to provide a
basis or an explanation for the claimed deduction. We conclude
that they are liable for the section 6662(a) accuracy-related
penalty.
Petitioners admitted that they estimated income and expenses
from the hairdressing activity on their 1996 return. Petitioners
produced a limited number of relevant documents (e.g., copies of
canceled checks, copies of appointment books, and copies of a
journal of certain expenses). Petitioners also conceded receipt
of a taxable award from Mr. Possas’s employer for 1996.
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