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Commissioner the burden of producing evidence that it is
appropriate to impose the accuracy-related penalty for negligence
under section 6662(a). Section 7491(c) applies because the
examination of petitioners’ returns for 1998 and 1999 (two of the
tax years in issue) began after July 22, 1998.
To meet the burden of production under section 7491(c), the
Commissioner must produce evidence showing that it is appropriate
to impose the particular penalty, but need not produce evidence
relating to defenses such as reasonable cause or substantial
authority. Higbee v. Commissioner, 116 T.C. 438, 446 (2001); H.
Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.
Respondent has met the burden of production with respect to
the negligence penalty because the record shows that petitioners
knowingly understated their income and claimed improper
deductions for personal expenses. See Snyder v. Commissioner,
T.C. Memo. 2001-255; Caralan Trust v. Commissioner, T.C. Memo.
2001-241. Petitioners have not shown that they acted with
reasonable cause or in good faith. They claim that they took
reasonable steps to report their income and that the deficiencies
were de minimis. We disagree that they acted reasonably to avoid
the errors discussed herein, and that the negligence penalty does
not apply to errors of this magnitude. See sec. 6662(b)(1).
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