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shown on the return, reduced by any rebate. Sec. 6662(d)(2)(A).
Section 6662(d)(2)(B) provides that the amount of the
understatement shall be reduced by that portion of the
understatement that is attributable to the tax treatment of any
item by the taxpayer if there is or was substantial authority for
the treatment or to any item with respect to which (1) the
relevant facts affecting the item's tax treatment are adequately
disclosed in the return or in a statement attached to the return,
and (2) there is a reasonable basis for such treatment.
Under section 6664(c), however, no penalty shall be imposed
under section 6662(a) with respect to any portion of an
underpayment if it is shown that there was a reasonable cause for
the portion and that the taxpayer acted in good faith with
respect to the portion of the underpayment.
The determination of whether a taxpayer acted with
reasonable cause and in good faith depends upon the facts and
circumstances of each particular case. Sec. 1.6664-4(b)(1),
Income Tax Regs. The taxpayer has the burden of proving that he
acted with reasonable cause and in good faith. Higbee v.
Commissioner, 116 T.C. 438, 446-449 (2001).
Due to the failure to report petitioner’s commission income
in 2001, petitioners had an understatement of tax in the amount
of $4,318. The amount of tax required to be shown on the 2001
return was $6,932; thus, the amount of the understatement exceeds
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Last modified: May 25, 2011