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IV. Penalties
A. Section 6662(a)
Respondent determined an accuracy-related penalty under
section 6662(a) of $8,021.80. Respondent determined that the
entire underpayment of tax for 1999 was attributable to
negligence or disregard of rules or regulations, a substantial
understatement of income tax, and/or a substantial valuation
misstatement.14 Petitioners argue that the underpayments for 1999
were caused by their reasonable reliance on Mr. Hertz in
preparing their return. This reliance, petitioners argue,
qualifies as “reasonable cause and good faith”, and under section
6664(c)(1), the penalty should not be sustained.
1. Burden of Production
Section 7491(c) provides that the Commissioner will bear the
burden of production with respect to the liability of any
individual for additions to tax and penalties. “The
Commissioner’s burden of production under section 7491(c) is to
produce evidence that it is appropriate to impose the relevant
penalty, addition to tax, or additional amount”. Swain v.
Commissioner, 118 T.C. 358, 363 (2002); see also Higbee v.
14 Although the notice of deficiency includes “substantial
valuation overstatement” (sic) as a basis for applying the
accuracy-related penalty, it appears that respondent did not
determine any tax deficiency based on a valuation overstatement.
We therefore do not address the aspects of the accuracy-related
penalty which relate to a substantial valuation overstatement.
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