-9-
the penalty. See Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001).
A taxpayer is liable for an accuracy-related penalty of 20
percent of any portion of an underpayment attributable to, among
other things, a substantial understatement of income tax. There
is a substantial understatement of income tax under section
6662(b)(2) if the amount of the understatement exceeds the
greater of either 10 percent of the tax required to be shown on
the return, or $5,000. Sec. 6662(a), (b)(1) and (2), (d)(1)(A);
sec. 1.6662-4(a), Income Tax Regs.
Petitioner reported he owed $8,169 for 2004 and respondent
determined upon examination that petitioner owed $29,983.4 Thus,
petitioner understated the tax on his return by $21,814, which is
greater than 10 percent of the tax required to be shown on the
return, or $5,000. Accordingly, respondent has met his burden of
production with respect to petitioner’s substantial
understatement of income tax for 2004.
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment, however, if it is shown
that there was reasonable cause for the taxpayer’s position and
that the taxpayer acted in good faith with respect to that
portion. Sec. 6664(c)(1); sec. 1.6664-4(b), Income Tax Regs.
The determination of whether a taxpayer acted with reasonable
cause and in good faith is made on a case-by-case basis, taking
4Respondent adjusted petitioner’s reported tax liability to
$6,956 after examining the taxable income petitioner reported on
the return.
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