-13-
Accordingly, we conclude that petitioners are not entitled to a
deduction for a loss related to Orion during the years in issue.5
III. Addition to Tax and Penalties
Section 7491(c) provides that the Commissioner will bear the
burden of production with respect to the liability of any
individual for additions to tax. “The Commissioner’s burden of
production under section 7491(c) is to produce evidence that it
is appropriate to impose the relevant penalty, addition to tax,
or additional amount”. Swain v. Commissioner, 118 T.C. 358, 363
(2002); see also Higbee v. Commissioner, 116 T.C. 438, 446
(2001). The Commissioner, however, does not have the obligation
to introduce evidence regarding reasonable cause or substantial
authority. Higbee v. Commissioner, supra at 446-447.
A. Section 6651(a)(1) Addition to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed (determined with regard to
any extension of time for filing), unless the taxpayer can
establish that such failure is due to reasonable cause and not
due to willful neglect. A Federal income tax return made on the
5 We note that the issue regarding the alleged $20,000
capital loss related to Orion first arose at trial. In their
opening brief, petitioners state that the issue regarding Orion
“[opened] the possibility of reporting the loss as a
Casualty/Theft loss. With full disclosure, Petitioner [sic] has
elected the capital loss as all they knew in 2002, [sic] was that
the investment was worthless.” Accordingly, whether there was a
theft loss is not at issue.
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