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to substantiate the amounts of the deductions. Sec. 6001; sec.
1.6001-1(a), Income Tax Regs. Petitioner did not produce
evidence to substantiate the losses claimed. Accordingly, we
sustain respondent’s determinations.2
Section 6662(a) imposes a penalty equal to 20 percent of the
amount of any underpayment attributable to various factors
including negligence or a substantial understatement of income
tax. See sec. 6662(b)(1) and (2). Negligence includes any
failure to make a reasonable attempt to comply with the law or
maintain adequate books and records. Sec. 6662(c); sec. 1.6662-
3(b)(1), Income Tax Regs. An understatement is substantial if it
exceeds the greater of $5,000 or 10 percent of the tax required
to be shown on the return. Sec. 6662(d)(1)(A)(i) and (ii).
Respondent bears the burden of production relating to the
penalty. Sec. 7491(c).
Respondent established that petitioner erroneously reported
income resulting in a $25,643 understatement of tax relating to
1998. Section 6664(c)(1), however, provides that no penalty
shall be imposed if a taxpayer demonstrates that there was
reasonable cause for the underpayment and the taxpayer acted in
good faith. The determination of whether a taxpayer acted with
reasonable cause and in good faith depends upon the facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
2 Sec. 7491(a) is inapplicable because petitioner failed to
introduce credible evidence within the meaning of sec.
7491(a)(1).
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Last modified: November 10, 2007