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applies. As relevant to this case, the penalty applies to any
portion of the underpayment that is attributable to any
substantial understatement of income tax. Sec. 6662(b)(2).
There is a “substantial understatement of income tax” if the
amount of the understatement exceeds the greater of 10 percent of
the tax required to be shown on the return or $5,000. Sec.
6662(d)(1).
The Commissioner bears the burden of production with respect
to penalties. Sec. 7491(c); Higbee v. Commissioner, 116 T.C.
438, 446-447 (2001). Once the burden of production is met, the
taxpayer must come forward with evidence sufficient to show that
the penalty does not apply. Higbee v. Commissioner, supra at
447.
The tax required to be shown on petitioner’s tax return was
$40,399. Ten percent of that amount is less than $5,000. Thus,
petitioner’s understatement is substantial if it exceeds $5,000.
Petitioner reported an income tax liability of $23,303, resulting
in an understatement of $17,096. Respondent has satisfied his
burden of production by showing that petitioner’s understatement
of tax was substantial.
The accuracy-related penalty is not imposed, however, with
respect to any portion of the understatement if the taxpayer can
establish he acted with reasonable cause and in good faith. Sec.
6664(c)(1). Reliance upon the advice of a professional may
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