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demonstrate that respondent’s penalty determination was in
error.18 Rule 142(a).
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment of tax attributable to, inter alia, any
substantial understatement of income tax. There is a
“substantial understatement” of tax if “the amount of the
understatement for the taxable year exceeds the greater of” (1)
10 percent of the tax required to be shown on the return or (2)
$5,000. Sec. 6662(d)(1)(A). An “understatement” means the
excess of the amount of tax required to be shown on the return
for the year over the amount of tax shown on the return. Sec.
6662(d)(2)(A).
Section 6664(c) provides an exception to the penalty imposed
under section 6662(a). “No penalty shall be imposed under this
part with respect to any portion of an underpayment if it is
shown that there was a reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.”
Sec. 6664(c)(1). “Underpayment” is defined as the amount by
which the tax imposed exceeds the excess of the sum of the amount
shown by the taxpayer on his return plus the amounts not shown
previously assessed over the amount of rebates made. Sec.
6664(a). The determination of whether the taxpayer acted with
reasonable cause and in good faith is made on a case-by-case
18See supra note 11.
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Last modified: May 25, 2011