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II. Accuracy-Related Penalty
Respondent determined that petitioners are liable for the
accuracy-related penalty due to negligence or disregard of rules
and regulations.13 See sec. 6662(b)(1). Respondent
alternatively determined that petitioners were liable for the
accuracy-related penalty because they substantially understated
their tax.14 See sec. 6662(b)(2).
We note that this is the first time the Commissioner is
asserting the penalty in cases involving stock purchased through
a margin account. Hilen v. Commissioner, T.C. Memo. 2005-226;
Facq v. United States, 363 F. Supp. 2d 1288 (W.D. Wash. 2005);
Miller v. United States, 345 F. Supp. 2d 1046 (N.D. Cal. 2004);
Palahnuk v. United States, supra.
While respondent bears the initial burden of production as
to the accuracy-related penalty and must come forward with
sufficient evidence that it is appropriate to impose the penalty,
the taxpayer bears the burden of proof as to any exception to the
accuracy-related penalty. See sec. 7491(c); Rule 142(a); Higbee
v. Commissioner, 116 T.C. 438, 446-447 (2001). One such
13Negligence is the lack of due care or failure to do what a
reasonable and ordinarily prudent person would do under the same
circumstances. Neely v. Commissioner, 85 T.C. 934 (1985).
Disregard is characterized as any careless, reckless, or
intentional disregard. Sec. 6662(c); sec. 1.6662-3(b)(1) and
(2), Income Tax Regs.
14There is a substantial understatement of tax 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) and (b)(1),
Income Tax Regs.
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