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By virtue of section 7491(c), respondent has the burden of
production with respect to the accuracy-related penalty. To meet
this burden, respondent must produce sufficient evidence
indicating that it is appropriate to impose the penalty. Higbee
v. Commissioner, 116 T.C. at 446. Once respondent meets this
burden of production, the taxpayer has the burden of proof with
regard to whether respondent’s determination of the penalty is
correct. Rule 142(a); Higbee v. Commissioner, supra. As a
defense to the penalty, the taxpayer bears the burden of proving
that he or she acted with reasonable cause and in good faith.
See sec. 6664(c)(1); see also Higbee v. Commissioner, supra; sec.
1.6664-4(b)(1), Income Tax Regs.
Respondent satisfied his burden of production under section
7491(a)(1) because the record shows that petitioner substantially
understated his income tax for 2001. See sec. 6662(d)(1)(A)(ii);
Higbee v. Commissioner, supra at 442. Accordingly, petitioner
bears the burden of proving that the accuracy-related penalty
should not be imposed with respect to any portion of the
understatement for which he acted with reasonable cause and in
good faith. See sec. 6664(c)(1); Higbee v. Commissioner, supra
at 446.
Although the issue may not be free from doubt, we are
satisfied, based on the totality of the facts and circumstances
in the instant case, that petitioner had reasonable cause to
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