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Accordingly, we sustain respondent’s determination as to the
claimed expenses still in dispute.
We turn now to whether petitioners are liable for the
accuracy-related penalty under section 6662(a). Respondent has
the burden of production under section 7491(c) and must come
forward with sufficient evidence that it is appropriate to impose
the penalty. See Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001).
Respondent determined that petitioners are liable for the
accuracy-related penalty for a substantial understatement of
income tax under section 6662(b)(2). 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).
Petitioners reported taxable income of $44,474 and Federal
income tax of $8,156. Respondent determined in the statutory
notice of deficiency that petitioners’ taxable income was $77,955
and that petitioners had an income tax deficiency of $7,977.8 We
are satisfied that petitioners substantially understated the
income tax required to be shown on their return and that
respondent has met his burden of production with respect to the
accuracy-related penalty.
8As we discussed supra note 4, because we find for
respondent on all amounts still in dispute, petitioners’
deficiency is $5,051.
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