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Respondent determined that petitioner is liable for the
accuracy-related penalty for a substantial understatement of
income tax under section 6662(b)(2) for 1998. There is a
substantial understatement of income tax if the amount of the
understatement exceeds the greater of either 10 percent of the
tax required to be shown on the return, or $5,000. Sec.
6662(d)(1)(A); sec. 1.6662-4(a), Income Tax Regs.
Petitioner reported tax due of $1,052, while respondent
determined the required tax due was $31,670, and therefore
determined a deficiency of $30,618. Petitioner understated his
income tax for 1998 in an amount greater than $5,000 or 10
percent of the tax required to be shown on the return.
Respondent has, therefore, met his burden of production with
respect to petitioner’s substantial understatement of income tax.
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment, however, if it is shown
that there was reasonable cause for the taxpayer’s position and
that the taxpayer acted in good faith with respect to that
portion. Sec. 6664(c)(1); sec. 1.6664-4(b), Income Tax Regs.
The determination of whether a taxpayer acted with reasonable
cause and in good faith depends on the pertinent facts and
circumstances, including the taxpayer’s efforts to assess his or
her proper tax liability, the knowledge and experience of the
taxpayer, and the reliance on the advice of a professional. Sec.
1.6664-4(b)(1), Income Tax Regs.
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