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defined as the excess of the tax required to be shown on the
return over the tax actually shown on the return. Sec.
6662(d)(2)(A). Tax is not understated to the extent that the
treatment of the item related thereto is based on substantial
authority or is adequately disclosed in the return or in a
statement attached to the return, and there is a reasonable basis
for the tax treatment of such item by the taxpayer. Secs.
6662(d)(2)(B), 6664(c)(1).
By virtue of section 7491(c), respondent has the burden of
production with respect to a section 6662 accuracy-related
penalty. To meet this burden, respondent must produce sufficient
evidence indicating that it is appropriate to impose the relevant
penalty. Higbee v. Commissioner, 116 T.C. at 446. Once
respondent meets this burden of production, the taxpayer,
however, 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, supra. The taxpayer also
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.
In light of our conclusions above, as well as respondent’s
concession, respondent did not satisfy his burden of production
under section 7491(a)(1) because the record demonstrates that the
understatement of income tax was not substantial within the
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