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Accuracy-Related Penalty
Section 6662 imposes a 20-percent accuracy-related penalty
on any underpayment of Federal income tax attributable to a
taxpayer’s negligence or disregard of rules or regulations or
substantial understatement of income tax. Sec. 6662(a) and
(b)(1) and (2). Section 6662(d) defines “substantial
understatement of income tax” as an amount exceeding the greater
of 10 percent of the tax required to be shown on the return or
$5,000. Under section 7491(c), the Commissioner bears the burden
of production with regard to penalties and must come forward with
sufficient evidence indicating that it is appropriate to impose
the penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
However, once the Commissioner has met the burden of production,
the burden of proof remains with the taxpayer, including the
burden of proving that the penalty is inappropriate because of
reasonable cause or substantial authority. Id. at 446-447; Rule
142(a).
The accuracy-related penalty under section 6662(a) will not
be imposed with respect to any portion of the underpayment as to
which the taxpayer acted with reasonable cause and in good faith.
Sec. 6664(c)(1). The decision as to whether a taxpayer acted
with reasonable cause and in good faith is made by taking into
account all of the pertinent facts and circumstances. Sec.
1.6664-4(b)(1), Income Tax Regs. The most important factor is
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Last modified: March 27, 2008