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by a return position that is merely arguable. Sec. 1.6662-
3(b)(3), Income Tax Regs.
Negligence may be indicated when a taxpayer fails to
ascertain the correctness of an item on the return that would
seem to a reasonable and prudent person to be “too good to be
true” under the circumstances. Sec. 1.6662-3(b)(1)(ii), Income
Tax Regs. A substantial understatement of income tax is defined
as an understatement of income tax that exceeds the greater of 10
percent of the tax required to be shown on the tax return or
$5,000. Sec. 6662(d)(1)(A).
As already discussed, the Commissioner bears the burden of
production in any court proceeding with respect to the penalty,
addition to tax, or additional amount imposed by title 26. Sec.
7491(c). The burden imposed on the Commissioner is to come
forward with sufficient evidence regarding the appropriateness of
applying a particular addition to tax or penalty against the
taxpayer. Wheeler v. Commissioner, 127 T.C. 200 (2006); Higbee
v. Commissioner, 116 T.C. 438 (2001). Section 7491(c) does not,
however, require the Commissioner to introduce evidence of
reasonable cause, substantial authority, or similar provisions.
Section 6664 provides an exception to the imposition of
accuracy-related penalties if the taxpayer shows that there was
reasonable cause for the underpayment and that the taxpayer acted
in good faith. Sec. 6664(c); United States v. Boyle, 469 U.S.
241 (1985). Whether a taxpayer acted with reasonable cause and
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Last modified: March 27, 2008