Sheila Mae Howard - Page 19

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          Memo. 1999-315; Butler v. Commissioner, T.C. Memo. 1998-355;                
          sec. 1.152-1(b), Income Tax Regs.                                           
               Although petitioner identified Carl as her son on her 1998             
          return, she is not related to him by blood or marriage, nor did             
          she adopt him.  Carl did not live with petitioner during all, nor           
          even the majority, of 1998.  Accordingly, we sustain respondent’s           
          determination that petitioner is not entitled to claim a                    
          dependency exemption for Carl for 1998.                                     

               E.  Section 6662(a)9                                                   

               The last issue for decision is whether petitioner is liable            
          for accuracy-related penalties pursuant to section 6662(a) for              
          1996 and 1997.  As relevant herein, section 6662(a) imposes a               
          penalty equal to 20-percent of any underpayment of tax that is              
          due to a substantial understatement of income.  See sec. 6662(a)            
          and (b)(2).  An individual substantially understates his or her             
          income tax when the reported tax is understated by the greater of           
          10-percent of the tax required to be shown on the return or                 
          $5,000.  Sec. 6662(d)(1)(A).  As this threshold computation is              
          dependent on our previous conclusions, we leave for the parties             
          to determine as part of the Rule 155 computation whether there              
          was a substantial understatement for 1996 and/or 1997.  Assuming            

               9  Respondent has satisfied his burden of production under             
          sec. 7491(c) with respect to the accuracy-related penalty under             
          sec. 6662(a) and (b)(2).  Sec. 7491(c); Rule 142(a);  Higbee v.             
          Commissioner, 116 T.C. 438, 446-447 (2001).                                 

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