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Respondent contends that petitioner was negligent in
underpaying his income taxes and that he acted without reasonable
cause and good faith. Petitioner counters that, because his
records were missing, he had reasonable cause for and acted in
good faith regarding the alleged underpayment.
Under section 7491(c), the Commissioner has the burden of
production where a penalty is imposed. To satisfy this burden,
the Commissioner must produce sufficient evidence to show that
the relevant penalty is appropriate but does not need to produce
evidence relating to defenses such as reasonable cause or
substantial authority. Higbee v. Commissioner, 116 T.C. at 446.
Once the Commissioner satisfies his burden of production, the
taxpayer has the burden of producing evidence sufficient to show
the Commissioner’s determination is incorrect. Id. at 447.
In this case, respondent has satisfied his burden of
production due to petitioner’s failure to substantiate his
Schedule C deductions. Failure to substantiate deductions as
required by sections 274 and 6001 may be negligent conduct within
the meaning of section 6662. See, e.g., Schladweiler v.
Commissioner, T.C. Memo. 2000-351, affd. 28 Fed. Appx. 602 (8th
Cir. 2002). Petitioner is required, therefore, to prove that he
had reasonable cause for the underpayment and that he acted in
good faith with respect to the underpayment. Sec. 6664(c).
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