Michael W. Allen - Page 12

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          is not entitled to deduct any expenses beyond those originally              
          reported on his returns for the years at issue.                             
          V.   Accuracy-Related Penalty                                               
               We turn now to respondent’s determination in the deficiency            
          notice that petitioner is liable for the accuracy-related penalty           
          under section 6662 for each of the years at issue.  Respondent              
          has the burden of production under section 7491(c) and must come            
          forward with sufficient evidence that it is appropriate to impose           
          the penalty.  See Higbee v. Commissioner, 116 T.C. 438, 446-447             
          (2001).                                                                     
               A taxpayer is liable for an accuracy-related penalty in the            
          amount of 20 percent of any part of an underpayment attributable            
          to, among other things, a substantial understatement of income              
          tax.  There is a substantial understatement of income tax under             
          section 6662(b)(2) if the amount of the understatement exceeds              
          the greater of either 10 percent of the tax required to be shown            
          on the return, or $5,000.  Sec. 6662(a), (b)(1) and (2),                    
          (d)(1)(A); sec. 1.6662-4(a), Income Tax Regs.  Respondent has met           
          his burden of production with respect to petitioner’s substantial           
          understatement of income tax for the years at issue.9  The                  
          following table demonstrates that petitioner understated his                
          income tax for each year at issue in an amount greater than                 

               9Respondent determined in the alternative that petitioner              
          was liable for the accuracy-related penalty for negligence or               
          disregard of rules or regulations under sec. 6662(b)(1) for the             
          years at issue.  Because respondent has proven that petitioner              
          substantially understated his income tax for the years at issue,            
          we need not consider whether petitioner was negligent or                    
          disregarded rules or regulations.                                           




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