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when the debt was canceled and that the insolvency exception of
section 108(a)(1)(B) applies.
We hold that petitioners’ income for 2003 includes $39,274
from the discharge of indebtedness that was not reported on their
2003 return.
B. Accuracy-Related Penalty
Section 7491(c) places the burden of production on the
Commissioner with respect to the liability of any individual for
any penalty, addition to tax, or additional amount.
Respondent contends that petitioners are liable for an
accuracy-related penalty under section 6662(a). Respondent has
the burden of production under section 7491(c) and must come
forward with evidence sufficient for us to sustain the section
6662(a) penalty. See Higbee v. Commissioner, 116 T.C. 438,
446-447 (2001). As pertinent here, section 6662(a) imposes a
20-percent penalty on the portion of an underpayment attributable
to negligence or disregard of rules or regulations, sec.
6662(b)(1), or a substantial understatement of tax, sec.
6662(b)(2). Negligence includes any failure to make a reasonable
attempt to comply with the provisions of the Internal Revenue
Code, including any failure to keep adequate books and records or
to substantiate items properly. Sec. 6662(c); sec.
1.6662-3(b)(1), Income Tax Regs. An “understatement” is the
excess of the amount of tax required to be shown on the tax
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