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comply with the provisions of the Internal Revenue Code,
including any failure to keep adequate books and records or to
substantiate items properly. See sec. 6662(c); sec.
1.6662-3(b)(1), Income Tax Regs. A “substantial understatement”
includes an understatement of tax that exceeds the greater of 10
percent of the tax required to be shown on the return or $5,000.
See sec. 6662(d); sec. 1.6662-4(b), Income Tax Regs. The
Commissioner bears the burden of production. Sec. 7491(c).
Section 6664(c)(1) provides that the penalty under section
6662(a) shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer’s
position and that the taxpayer acted in good faith with respect
to that portion. The determination of whether a taxpayer acted
with reasonable cause and in good faith is made on a case-by-case
basis, taking into account all the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The most
important factor is the extent of the taxpayer’s effort to assess
her proper tax liability for the year. Id.
Petitioner had a substantial understatement of tax for 2002
because the understatement amount exceeded 10 percent of the tax
required to be shown on the return. The Court concludes that
respondent has produced sufficient evidence to show that the
accuracy-related penalty under section 6662 is appropriate.
Nothing in the record indicates petitioner acted with reasonable
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