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attributable to personal physical injuries or physical sickness
and hold that none of that payment may be excluded from
petitioners’ gross income under section 104(a)(2). We note that
petitioners have not asserted that Kidd paid for any medical care
attributable to emotional distress, so as to come within the
exception described in the flush language of section 104(a), and
that the record does not establish that any such payments were in
fact made.
Respondent also determined that petitioners are liable for
the 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 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
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