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amount of the understatement exceeds the greater of 10 percent of
the tax required to be shown on the tax return or $5,000. Sec.
6662(d)(1)(A).
Section 7491(c) requires the Commissioner to carry the
burden of production because he seeks to impose the penalty.
Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once the
burden of production is met, the taxpayer must come forward with
sufficient evidence that the penalty does not apply. Id. at 447.
Petitioners reported a tax liability of $48,524 on their
2000 tax return. Respondent determined that petitioners'
corrected tax liability was $88,043. The difference is fully
attributable to petitioners' omission of Mr. Sullivan's wages
from CEMAX. Respondent has satisfied his burden by showing that
the understatement of tax exceeds the greater of 10 percent of
the tax required to be shown on the return or $5,000.
The amount of an understatement is reduced to the extent it
is attributable to a position: (1) For which there is
substantial authority, or (2) which the taxpayer adequately
disclosed on his return and for which there is a reasonable
basis. Sec. 6662(d)(2)(B). Petitioners have not met either of
these requirements.
The accuracy-related penalty is not imposed, however, with
respect to any portion of the understatement if the taxpayer can
establish that he acted with reasonable cause and in good faith.
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Last modified: May 25, 2011