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C. Interest, Wage, and Remaining Expenses
As indicated above, respondent disallowed claimed deductions
for interest expense, wage expense, and remaining expenses, such
as rent, supplies, and utilities expenses. Petitioner either
failed to establish that she paid or incurred these expenses, or
that they were incurred in connection with the cleaning business.
Respondent’s determination therefore is sustained.
II. Accuracy-Related Penalty
Section 6662(a) provides that a taxpayer may be liable for a
penalty of 20 percent of the portion of an underpayment of tax
attributable to negligence or disregard of rules or regulations.
Sec. 6662(a) and (b)(1). Negligence includes any failure by the
taxpayer to keep adequate books and records or to substantiate
items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. Disregard
of rules or regulations includes any careless, reckless, or
intentional disregard. Sec. 1.6662-3(b)(2), Income Tax Regs.
The Commissioner bears the burden of production with respect to
the accuracy-related penalty. See sec. 7491(c); Higbee v.
Commissioner, 116 T.C. 438, 446 (2001). An exception to the
section 6662(a) penalty applies when the taxpayer demonstrates
(1) there was reasonable cause for the underpayment, and (2) the
taxpayer acted in good faith with respect to the underpayment.
Sec. 6664(c).
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Last modified: November 10, 2007