James Edward and Brenda Dianne Starkovich - Page 6

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          have failed to meet their burden and sustains respondent's                  
          determination with respect to the 2001 unreported income.                   
          B.   Accuracy-Related Penalty                                               
               Under section 7491(c), the Commissioner has the burden of              
          production in any court proceeding with respect to the liability            
          of any individual for any penalty or addition to tax.  Higbee v.            
          Commissioner, 116 T.C. 438, 446-447 (2001).  In order to meet his           
          burden of production, the Commissioner must come forward with               
          sufficient evidence indicating that it is appropriate to impose             
          the accuracy-related penalty.  Id. at 446.  Once the Commissioner           
          meets his burden of production, the taxpayer must come forward              
          with evidence sufficient to persuade a court that the                       
          Commissioner's determination is incorrect.  Id. at 447.                     
               Respondent determined that petitioners are liable for the              
          accuracy-related penalty under section 6662(a).  Section 6662(a)            
          imposes a 20-percent penalty on the portion of an understatement            
          attributable to any one of various factors, including negligence            
          or disregard of rules or regulations and a substantial                      
          understatement of income tax.  See sec. 6662(b)(1) and (2).                 
          "Negligence" includes any failure to make a reasonable attempt to           
          comply with the provisions of the Internal Revenue Code,                    
          including any failure to keep adequate books and records or to              
          substantiate items properly.  See sec. 6662(c); sec.                        
          1.6662-3(b)(1), Income Tax Regs.  A "substantial understatement"            

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