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In this case, Murphy did contest in his petition the penalty
on all the items that the Commissioner disallowed. It was
therefore up to the Commissioner to come forward with at least
some evidence that their imposition was justified--for example,
by showing that Murphy hadn’t kept adequate books and records on
those items. See, e.g., Higbee v. Commissioner, 116 T.C. 438,
449 (2001); Biazar v. Commissioner, T.C. Memo. 2004-270.
This he did not do. Instead, he argues that Murphy’s
concession to the disallowance of these minor items is ipso facto
proof of Murphy’s negligence. This argument is much too broad--
conceding that a deduction is not allowable is not the same as
conceding that it was taken negligently or in intentional
disregard of the rules and regulations.
The Commissioner’s alternate basis for the penalty is that
Murphy substantially understated his tax liability. An
understatement is deemed “substantial” if it exceeds the greater
of ten percent of the tax required to be shown on the return, or
$5,000. Sec. 6662(d)(1)(A); sec. 1.6662-4(b)(1), Income Tax
Regs. As we reasoned in Perry Funeral Home v. Commissioner, T.C.
Memo. 2003-340, the Commissioner satisfies his burden under
section 7491(c) to show some evidence of understatement by
pointing to a taxpayer’s concession that at least some deductions
were not allowable. Whether any understatement resulting from
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