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Section 7491(c) places on the Commissioner the burden of
production with respect to a taxpayer’s liability for any
penalty. “The Commissioner’s burden of production under section
7491(c) is to produce evidence that it is appropriate to impose
the relevant penalty”. Swain v. Commissioner, 118 T.C. 358, 363
(2002); see also Higbee v. Commissioner, 116 T.C. 438, 446
(2001). The Commissioner, however, does not have the burden to
introduce evidence regarding reasonable cause or substantial
authority. Higbee v. Commissioner, supra at 446-447. The
taxpayer, however, still has the burden of proving that the
Commissioner’s determination of the accuracy-related penalty is
erroneous. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933);
Higbee v. Commissioner, supra at 446-448.
Respondent satisfied his burden of production under section
7491(a)(1) because the record shows that petitioners
substantially understated their income tax for 2000. See sec.
6662(d)(1)(A)(ii); Higbee v. Commissioner, supra at 442.
Accordingly, petitioners bear the burden of proving that the
accuracy-related penalty should not be imposed with respect to
any portion of the understatement for which they acted with
reasonable cause and in good faith. See sec. 6664(c)(1); Higbee
v. Commissioner, supra at 446. The mere fact that we held
against petitioners with respect to the section 119 exclusion
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Last modified: May 25, 2011