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the passive activity loss in 2000. Respondent’s determination
is sustained.
Accuracy-Related Penalty Under Section 6662(a)
Section 6662(a) provides that a taxpayer may be liable for
a penalty of 20 percent of the portion of an underpayment of tax
attributable to (1) a substantial understatement of tax or (2)
negligence or disregard of rules or regulations. Sec. 6662(a),
(b)(1) and (2). An “understatement of tax” is substantial if it
exceeds the greater of 10 percent of the tax required to be
shown on the return or $5,000. Sec. 6662(d)(1) and (2). The
term “negligence” includes any failure to make a reasonable
attempt to comply with the provisions of the Internal Revenue
Code. Sec. 6662(c). The term “disregard” includes any
careless, reckless, or intentional disregard. Id. Respondent
has the burden of production with respect to the
accuracy-related penalty. See sec. 7491(c).
In the present case, 10 percent of the tax required to be
shown on petitioners’ return was $5,592.90. Petitioners
understated their tax by $26,693. Respondent therefore has met
his burden of production.
An exception to the section 6662 penalty applies when the
taxpayer demonstrates (1) there was reasonable cause for the
underpayment, and (2) the taxpayer acted in good faith with
respect to the underpayment. Sec. 6664(c). Whether the
taxpayer acted with reasonable cause and in good faith is
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