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Petitioners, at trial, conceded that they should have
reported on their 2003 return the respective distributions that
Northwestern Mutual, Merrill Lynch, and Commerce Bank made to
them during 2003. Petitioners do not dispute that they received
Forms 1099 for each of the distributions at issue. Petitioners
also concede that the understatement of tax on their 2003 return
exceeds the greater of 10 percent of the tax required to be shown
in that return or $5,000. See sec. 6662(d)(1)(A). Given
petitioners’ concessions in this case, we find that respondent
has satisfied his burden of production with respect to section
7491(c) and the accuracy-related penalty.
In response, petitioners contend that they are not liable
for the accuracy-related penalty with respect to the Northwestern
Mutual distribution because they reasoned on a good-faith belief
that the cash surrender value from the policy should be excluded
from their gross income. In determining whether a taxpayer has
acted in good faith, generally the most important factor “is the
extent of the taxpayer’s effort to assess the taxpayer’s proper
tax liability.” Sec. 1.6664-4(b)(1), Income Tax Regs.
We are not convinced, based on the record before us, that
petitioners took any steps prior to the filing of their 2003
return to assess the income tax treatment of the Northwestern
Mutual distribution. Moreover, we note that it was only after
they received their notice of deficiency that petitioners thought
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