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taking into account all the pertinent facts and circumstances.
Sec. 1.6664-4(b)(1), Income Tax Regs.
Under section 7491(c), the Commissioner must come forward
with sufficient evidence to show that a penalty is appropriate.4
Higbee v. Commissioner, 116 T.C. 438, 446 (2001). However, the
Commissioner does not bear the burden of proof as to a penalty,
and once the initial burden of production is met, the taxpayer
must come forward with sufficient evidence to establish that the
addition to tax does not apply. Id. at 447.
Petitioner reported a tax liability of $10,071 on his 2000
tax return. Respondent determined that petitioner’s corrected
tax liability, including additional tax under section 72(t), was
$30,086. Respondent calculated that $18,299 of the corrected tax
liability was attributable to the Schedule C loss which
petitioner has conceded he is not entitled to deduct. Thus,
respondent has satisfied the burden of showing that the accuracy-
related penalty is appropriate because the understatement of tax
exceeds the greater of 10 percent of the tax required to be shown
on the return, or $5,000.5 In order to avoid imposition of the
4Sec. 7491 is effective with respect to court proceedings
arising in connection with examinations commencing after July 22,
1998. Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. The evidence
in the record indicates that the examination in this case
commenced after July 22, 1998.
5The computational adjustments to petitioner’s 2000 return
(continued...)
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