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Gavilan Hills, is not significant enough to overcome the
other factors.
For these and all other reasons stated herein, we find
that petitioner’s horse activity was not engaged in for
profit within the meaning of section 183. Therefore,
respondent’s determination that petitioner may not deduct
losses from that activity is sustained.
B. Accuracy-Related Penalty Under Section 6662
Respondent determined that petitioner is liable for
accuracy-related penalties under section 6662(a) for 1999
and 2000.13 Section 6662(a) imposes a penalty in the amount
of 20 percent on the portion of the underpayment to which
the section applies. As relevant to this case, the penalty
applies to any portion of the underpayment that is
attributable to any substantial understatement of income
tax. Sec. 6662(b)(2). There is a “substantial
understatement of income tax” if the amount of the
understatement exceeds the greater of 10 percent of the tax
required to be shown on the tax return or $5,000. Sec.
6662(d)(1)
Section 7491(c) requires the Commissioner to carry the
burden of production with regard to penalties. Higbee v.
13 As previously noted, respondent has conceded that
petitioner is not liable for an accuracy-related penalty for
2001.
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