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substantial understatement penalty under section 6662(b)(2).17
Petitioners assert (1) respondent’s determination is invalid
because respondent did not consider “standardized exception
criteria” before imposing the penalty, and (2) the penalty is
inapplicable because petitioners acted in good faith and
reasonably relied upon tax professionals to prepare their tax
return for 2000.
While the Commissioner bears the initial burden of
production as to the accuracy-related penalty and must come
forward with sufficient evidence showing it is appropriate to
impose the penalty, the taxpayer bears the burden of proof as to
any exception to the accuracy-related penalty. See sec. 7491(c);
Rule 142(a); Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001). One such exception to the accuracy-related penalty
applies to any portion of an underpayment if the taxpayer can
prove there was reasonable cause for the taxpayer’s position and
the taxpayer acted in good faith with respect to that portion.
Sec. 6664(c)(1); sec. 1.6664-4(b), Income Tax Regs. The
determination of whether a taxpayer acted with reasonable cause
17 There is a substantial understatement of tax if the
amount of the understatement exceeds the greater of either 10
percent of the tax required to be shown on the return, or $5,000.
Sec. 6662(a), (b)(1) and (2), (d)(1)(A); sec. 1.6662-4(a) and
(b)(1), Income Tax Regs. This threshold is satisfied in the
instant case.
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