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to petitioners in 1996 are unaffected by the adjustment to the
amount of partnership liabilities.
Since we conclude that petitioners had sufficient bases taking
into account only the assets and liabilities agreed to by the
parties, we need not decide other arguments made by petitioners
regarding this issue.
C. Whether Petitioners Are Liable for The Accuracy-Related
Penalties Under Section 6662(a) for The Years at Issue.
Respondent contends that petitioners are liable for an
accuracy-related penalty under section 6662(a). Respondent has the
burden of production under section 7491(c) and must come forward
with evidence sufficient for us to sustain the section 6662(a)
penalty. See Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001);
Emerson v. Commissioner, T.C. Memo. 2003-82.
As pertinent here, section 6662(a) imposes a 20-percent
penalty on the portion of an underpayment attributable to
negligence or disregard of rules or regulations, sec. 6662(b)(1),
or a substantial understatement of tax, sec. 6662(b)(2).
Negligence includes any failure to make a reasonable attempt to
comply with the provisions of the Internal Revenue Code, including
any failure to keep adequate books and records or to substantiate
items properly. Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax
Regs. An “understatement” is the excess of the amount of tax
required to be shown in the tax return over the amount of tax shown
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