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Respondent now concedes that petitioners are not liable for the
penalty with respect to the $15 from Farmers. Respondent
therefore asserts the penalty only with respect to the unreported
State income tax refund, see supra note 1, and the unreported
self-employment income from MetLife.
Section 6662(a) provides in relevant part that a taxpayer
may be liable for a penalty of 20 percent of the portion of an
underpayment of tax attributable to negligence or disregard of
rules or regulations. Sec. 6662(a) and (b)(1). 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).
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 determined by
the relevant facts and circumstances on a case-by-case basis.
See Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec.
1.6664-4(b)(1), Income Tax Regs. “Circumstances that may
indicate reasonable cause and good faith include an honest
misunderstanding of fact or law that is reasonable in light of
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