Roy W. and Sharon P. Oswandel - Page 11




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               Respondent bears the burden of production with respect to              
          the accuracy-related penalties.  Sec. 7491(c).  In order to meet            
          this burden of production, respondent must produce sufficient               
          evidence that it is appropriate to impose the accuracy-related              
          penalties.  Once respondent has done so, the burden of proof is             
          upon petitioners.  Higbee v. Commissioner, 116 T.C. 438, 449                
          (2001).  Petitioners may carry their burden by proving that with            
          respect to their underpayment there was reasonable cause and they           
          acted in good faith.  Sec. 6664(c)(1).                                      
               Respondent has satisfied his burden of production in that              
          the record establishes that petitioners failed to substantiate              
          their claimed deductions.  Section 6001 imposes on petitioners a            
          duty to maintain books and records sufficient to support items              
          reported on their returns, and petitioners’ breach of that duty             
          is contrary to what a prudent and responsible taxpayer would have           
          done under the circumstances.  See sec. 1.6662-3(b)(1), Income              
          Tax Regs.  Petitioners must now establish reasonable cause and              
          good faith in order to escape liability for the accuracy-related            
          penalties under section 6662(a).  Petitioners have failed to                
          persuade us that their failure to maintain the requisite                    
          substantiation was excused by reasonable cause and good faith.              
          We sustain respondent’s determination that petitioners are liable           
          for the 2000 and 2001 accuracy-related penalties under section              
          6662(a).                                                                    







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