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shown by the greater of 10 percent of the tax required to be
shown or $5,000. Sec. 6662(d)(1)(A).
The Commissioner has the burden of production under section
7491(c) with respect to the liability of any individual for a
penalty imposed by the Internal Revenue Code and must come
forward with sufficient evidence indicating that it is
appropriate to impose the penalty. See Higbee v. Commissioner,
116 T.C. 438, 446-447 (2001). Once the Commissioner meets his
burden of production, the taxpayer must come forward with
persuasive evidence that the Commissioner's determination as to
the penalties is incorrect or that the taxpayer had reasonable
cause or substantial authority for his position. See id. at 447;
sec. 1.6664-4, Income Tax Regs.
We have sustained respondent's determination of a $73,374
increase in petitioner's taxable wages for tax year 2002.9 In
petitioners' circumstances, the omission10 would produce an
understatement exceeding the greater of $5,000 or 10 percent of
the tax required to be shown on their return. Accordingly,
9 Petitioners' reporting of the proceeds from the stock
option transactions as capital gains did not offset this
omission, as the capital gains claimed with respect to the stock
option transactions were absorbed by petitioners' reported
capital losses in excess of $300,000.
10 Petitioners have also conceded that they were not
entitled to a $7,000 deduction claimed with respect to an IRA
contribution. Petitioners have offered no argument to the effect
that the portion of the underpayment attributable to this item is
due to reasonable cause or any other mitigating factor.
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