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IV. Additions to Tax and Penalties
A. Burden of Production: Section 7491(c)
Section 7491(c) provides that the Commissioner will bear the
burden of production with respect to the liability of any
individual for additions to tax and penalties. “The
Commissioner’s burden of production under section 7491(c) is to
produce evidence that it is appropriate to impose the relevant
penalty, addition to tax, or additional amount”. Swain v.
Commissioner, 118 T.C. 358, 363 (2002); see also Higbee v.
Commissioner, 116 T.C. 438, 446 (2001). If a taxpayer files a
petition alleging some error in the determination of an addition
to tax or penalty, the taxpayer’s challenge will succeed unless
the Commissioner produces evidence that the addition to tax or
penalty is appropriate. Swain v. Commissioner, supra at 363-365.
The Commissioner, however, does not have the obligation to
introduce evidence regarding reasonable cause or substantial
authority. Higbee v. Commissioner, supra at 446-447. Section
7491(c) applies to examinations commenced after July 22, 1998.3
Id. at 440.
3 As petitioners alleged in the petition that respondent’s
additions to tax and penalties determinations were in error,
including the determination for their 1998 tax year, respondent
cannot claim to be surprised that sec. 7491(c) would be in issue
in this case. See Swain v. Commissioner, 118 T.C. 358, 363-365
(2002); Hildebran v. Commissioner, T.C. Memo. 2004-42.
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