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The amounts required to be reported by petitioners on their
income tax returns for the years in issue and the understatements
determined by respondent for those years are set forth in our
findings. The amount of the understatement for each of the years
in issue is more than 10 percent of the tax required to be shown
and greater than $5,000, which meets the section 6662(d)
definition of “substantial understatement”. Thus, petitioners
substantially understated their income for those years, and
respondent’s burden of production under section 7491(c) has been
met.
Petitioner Juan Ramirez (petitioner) argued at trial that he
was not aware that petitioners’ income tax liability was
substantially understated on their returns for the years in
issue, because he simply turned over all records to his
accountant and paid what she told him to pay. The return
preparer was not called as a witness at trial. Even if
petitioners did not review their returns for the years in issue
and relied blindly on the calculations of petitioner’s
accountant, such course of action is not reasonable, especially
in light of the substantial amounts of petitioner’s gross
receipts in those years, petitioner’s business experience, and
the large discrepancy between the tax liability reported and the
tax liability actually owed. Petitioners have not met their
burden of proving that they acted with reasonable cause and in
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Last modified: March 27, 2008