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account all the pertinent facts and circumstances. Sec. 1.6664-
4(b)(1), Income Tax Regs. Generally, the most important factor
is the extent of the taxpayer’s effort to assess the proper tax
liability, including reliance on the advice of a tax return
preparer. Id.
By virtue of section 7491(c), respondent has the burden of
production with respect to the accuracy-related penalty. To meet
this burden, respondent must produce sufficient evidence
indicating that it is appropriate to impose the penalty. See
Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once
respondent meets this burden of production, petitioner must come
forward with persuasive evidence that respondent’s determination
is incorrect. Rule 142(a); see Higbee v. Commissioner, supra.
As a defense to the penalty, petitioner 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.
Respondent satisfied his burden of production under section
7491(a)(1) because the record shows that petitioners
substantially understated their income tax for the years in
issue. See sec. 6662(d)(1)(A)(ii); Higbee v. Commissioner, supra
at 442. Accordingly, petitioners bear the burden of proving that
the accuracy-related penalty should not be imposed with respect
to any portion of the understatement for which they acted with
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