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We sustain respondent’s disallowance of each of the deductions at
issue.5
Accuracy-Related Penalties
Respondent determined that petitioners are liable for
accuracy-related penalties under section 6662(a) for both years
in issue with respect to the underpayments resulting from the
total amounts of the deficiencies. Respondent has the burden of
production with respect to the penalties but the burden of proof
remains on petitioners. Sec. 7491(c); Higbee v. Commissioner,
116 T.C. 438 (2001).
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment attributable to any one of various factors,
one of which is negligence or disregard of rules or regulations.
Sec. 6662(b)(1). “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. Section 6664(c)(1) provides
that the penalty under section 6662(a) shall not apply to any
portion of an underpayment if it is shown that there was
5The rent expense claimed by petitioners as both employee
business expense and Schedule C business expense was connected to
petitioner’s use of his own residence. Although petitioners do
not directly address the “home office” provisions of sec. 280A we
note that petitioners have not shown that any portion of their
residence was “exclusively used on a regular basis” for business
purposes. Sec. 280A(c)(1).
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