- 12 - 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 fromPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011