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term “disregard” includes any careless, reckless, or intentional
disregard. Sec. 6662(c).
3. Analysis
Respondent has met the burden of production imposed on him
by section 7491(c). Respondent has shown that the underpayments
of petitioners’ 1999 taxes exceeds the greater of $5,000 or 10
percent of the tax required to be shown on the return, and is
therefore due to a “substantial understatement”. Sec.
6662(d)(1)(A). To avoid application of the penalty, petitioners
must therefore demonstrate that the underpayments of tax for 1999
were due to reasonable cause and good faith.15 See Higbee v.
Commissioner, supra at 449.
Whether applied because of a substantial understatement of
tax or negligence or disregard of rules or regulations, the
accuracy-related penalty is not imposed with respect to any
portion of the underpayment as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1). The
decision as to whether a taxpayer acted with reasonable cause and
in good faith depends upon all the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Relevant
factors include the taxpayer’s efforts to assess his proper tax
liability, including the taxpayer’s reasonable and good faith
15 There is no claim or proof that petitioners may reduce
the amount of the understatement under sec. 6662(d)(2)(B).
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