- 3 - 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).Page: Previous 1 2 3 4 5 NextLast modified: November 10, 2007