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that there was reasonable cause for the underpayment, and the
taxpayer acted in good faith.
Even though the burden of production is on the Commissioner
under section 7491(c) as to penalties, that does not mean that
the burden of proof shifts to the Commissioner. Where the
Commissioner introduces sufficient evidence to show that the
taxpayer is liable for the penalty, the taxpayer has the burden
of proving that he is not liable for the penalty. Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001). The Court is
satisfied that respondent has met the burden of production in
this case. Petitioners claimed deductions for a nonexistent
activity. The actions of petitioners, as described above,
represented a blatant attempt to circumvent the Internal Revenue
Code, which, unfortunately, they were able to get away with for
several prior years. Petitioners have no reasonable cause for
the underpayments for the 2 years at issue in this case in which
their nonexistent activity was brought to light. The accuracy-
related penalties are sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.
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Last modified: May 25, 2011