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accuracy-related penalty is not applicable to any portion of an
underpayment to the extent that a taxpayer has reasonable cause
for that portion and acts in good faith with respect thereto.
See sec. 6664(c)(1).
Respondent bears the burden of production with respect to
the accuracy-related penalty. Sec. 7491(c). To meet this burden
of production, respondent must produce sufficient evidence that
it is appropriate to impose an accuracy-related penalty. Once
respondent has produced sufficient evidence, the burden of proof
is upon petitioners. See Higbee v. Commissioner, 116 T.C. 438,
449 (2001). Petitioners may carry their burden by proving that
with respect to their underpayment there existed reasonable cause
and they acted in good faith. Sec. 6664(c)(1).
Respondent has satisfied the 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. Further, petitioners have failed to persuade us that
their failure to maintain the requisite substantiation was
excused by reasonable cause and good faith; therefore, we sustain
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Last modified: November 10, 2007