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is not applicable, and petitioners bear the burdens of proof and
production with respect to the penalty. Bixby v. Commissioner,
58 T.C. 757, 791-792 (1972).
Section 6662(b) imposes an accuracy-related penalty in the
amount of 20 percent of any underpayment that is attributable to
one or more of the following: (1) Negligence or disregard of
rules or regulations; (2) any substantial understatement of
income tax; (3) any substantial valuation misstatement. Section
6662(d)(1) defines substantial understatement as an amount that
exceeds the greater of 10 percent of the tax required to be shown
on the return for the taxable year or $5,000.
Section 6662(d)(2)(B) provides that an understatement does
not include any item on the taxpayer’s return if there existed
substantial authority for the taxpayer’s treatment of that item,
or if the relevant facts affecting the treatment of that item
were adequately disclosed on the taxpayer’s return or an attached
statement, and there was a reasonable basis for the taxpayer’s
treatment of that item.
Section 6664(c) provides an exception to the accuracy-
related penalty if the taxpayer can show that there was
reasonable cause for the underpayment and that the taxpayer acted
in good faith with respect to the underpayment. A taxpayer’s
good faith and reasonable reliance on the advice of an
independent professional as to the tax treatment of an item may
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Last modified: May 25, 2011