-10-
Respondent also determined that petitioner is liable for an
accuracy-related penalty under section 6662(a) and (d). Section
6662(a) and (d) imposes an accuracy-related penalty if any
portion of an underpayment is attributable to a substantial
understatement of income tax. An understatement of income tax is
substantial if it exceeds 10 percent of the tax required to be
shown on the return or $5,000. Sec. 6662(d)(1). Respondent
bears the burden of production under section 7491(c) and must
come forward with sufficient evidence indicating that it is
appropriate to impose an accuracy-related penalty. Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001). Once respondent has
met this burden, the taxpayer must come forward with persuasive
evidence establishing that the accuracy-related penalty does not
apply. Id. The taxpayer may establish, for example, that part
or all of the accuracy-related penalty is inapplicable because it
is attributable to an understatement for which the taxpayer acted
reasonably and in good faith. Sec. 6664(c)(1). Whether a
taxpayer acted in such a fashion is a factual determination, sec.
1.6664-4(b)(1), Income Tax Regs., for which the taxpayer’s effort
to assess the proper tax liability is usually the most important
consideration.
Here, respondent has met his burden of production in that
the understatement on petitioner’s return is “substantial” within
the meaning of section 6662(d)(1). Petitioner argues that he
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