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Under section 6662, among other things, a 20-percent
accuracy-related penalty is to be added to the portion of an
underpayment of tax attributable to a substantial understatement
of income tax.
A substantial understatement of income tax and of self-
employment tax is defined as an understatement constituting the
greater of 10 percent of the tax required to be shown on a
Federal income tax return or $5,000. Sec. 6662(d)(1)(A). An
understatement may be reduced by that portion of the
understatement which is attributable to: (1) Substantial
authority for the claimed tax treatment of the item; (2) adequate
disclosure combined with a reasonable basis for the claimed tax
treatment of the item; or (3) reasonable cause and good faith
with regard to the unpaid tax. Secs. 6662(d)(2)(B), 6664(c)(1).
Under section 7491(c), respondent has the burden of
production with respect to a section 6662 accuracy-related
penalty. Once respondent meets that burden of production,
however, the taxpayer continues to have the burden of proof with
regard to whether respondent’s determination of the penalty is
correct. Rule 142(a); Higbee v. Commissioner, 116 T.C. 438, 446
(2001).
By establishing the taxability of the $57,845 petitioner
received from the tribe in 2001 and as to the self-employment tax
due on the $33,295 that petitioner received for her work as
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Last modified: May 25, 2011