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Although it is highly probable that the Treasury note had a
material tax basis, petitioners did not provide any evidence or
documentation regarding the basis of the Treasury note.7
Petitioners’ contention that the income is that of Lucky Kirt
Trust is unavailing because the Lucky Kirt Trust is disregarded
for Federal income tax purposes. The Court, therefore, sustains
respondent on this issue.
VI. Section 6662 Penalty
With respect to examinations beginning after July 22, 1998,
the Commissioner bears the burden of production in any court
proceeding involving an individual’s liability for penalties or
additions to tax. Sec. 7491(c). To meet this burden, the
Commissioner must come forward with sufficient evidence
indicating that it is appropriate to impose the relevant penalty
or addition to tax. Higbee v. Commissioner, 116 T.C. 438, 446
(2001). In instances where an exception to the penalty or
addition to tax is afforded upon a showing of reasonable cause,
the taxpayer bears the burden of showing such cause. Id. at 447.
Section 6662(a) provides for an accuracy-related penalty in
the amount of 20 percent of the portion of an underpayment
attributable to (among other things): (1) Any negligence or
7 The Court highlighted this issue at the start of the trial
by suggesting to petitioners that the Court should hear any
evidence pertaining to the amount they paid for the note or any
other evidence that could be relevant to their tax liability.
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