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6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. The term
“disregard” includes any careless, reckless, or intentional
disregard. Sec. 6662(c). An understatement of income tax is
“substantial” if it exceeds the greater of 10 percent of the tax
required to be shown on the return or $5,000. Sec.
6662(d)(1)(A). An “understatement” is defined as the excess of
the tax required to be shown on the return over the tax actually
shown on the return, less any rebate. Sec. 6662(d)(2)(A).
The Commissioner has the burden of production under section
7491(c) and must come forward with sufficient evidence indicating
that it is appropriate to impose the penalty. See Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001). Because the
understatement on each of petitioners’ returns satisfies the
definition of “substantial”, respondent has met that burden of
production in these cases. Once the Commissioner meets the
burden of production, the taxpayer must come forward with
persuasive evidence that the Commissioner’s determination is
incorrect. Id. at 447.
The section 6662(a) penalty will not be imposed with respect
to any portion of the underpayment as to which the taxpayer acted
with reasonable cause and in good faith. Sec. 6664(c)(1); see
also Higbee v. Commissioner, supra at 448. The decision as to
whether a taxpayer acted with reasonable cause and in good faith
is made by taking into account all of the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Relevant
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