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understatement is defined as the excess of the amount of the tax
required to be shown on the taxpayer’s return over the amount of
the tax which is shown on the return. Sec. 6662(d)(2)(A).
Under section 7491(c), respondent has the burden of
production with respect to the accuracy-related penalty under
section 6662(a). To meet that burden, respondent must come
forward with sufficient evidence to show that imposition of the
penalty is appropriate. Higbee v. Commissioner, 116 T.C. 438,
446 (2001). We have sustained, or petitioners have conceded, the
determinations in the notice that give rise to the deficiency
that respondent determined. In addition, we have rejected
petitioners’ position that they are entitled to a casualty loss
deduction. Respondent has satisfied his burden of production
under section 7491(c) with respect to the accuracy-related
penalty under section 6662(a) determined in the notice.
The accuracy-related penalty does not apply to any part of
an underpayment of tax if it is shown the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1). The
determination of whether a taxpayer acted in good faith is made
on a case-by-case basis, taking into account all the pertinent
facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
Petitioners bear the burden of proof that they had reasonable
cause and acted in good faith with respect to the understatement.
Higbee v. Commissioner, supra at 449.
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