- 20 -
of any item with respect to which the taxpayer provides adequate
disclosure. Sec. 1.6662-4(a), (e), Income Tax Regs.
The understatement of income tax resulting from the
disallowance of petitioners’ Schedule C deductions, alone, is
$5,546, which is greater than 10 percent of the tax petitioners
were required to show on their 2001 return. Therefore, we
conclude that respondent has met his burden of production for his
determination of the accuracy-related penalty based on a
substantial understatement of income tax pursuant to section
6662(d)(1)(A).
Accordingly, petitioners bear the burden of proving that the
accuracy-related penalty should not be imposed with respect to
any portion of the underpayment for which they acted with
reasonable cause and in good faith. See sec. 6664(c)(1); Higbee
v. Commissioner, supra at 446.
Some of the claimed deductions, such as those for meals for
Mr. Vigil’s family (absent proof that these expenses had a bona
fide business purpose), are likely nondeductible family living
expenses. See sec. 262; sec. 1.162-2(c), Income Tax Regs. In
addition, it should be obvious to any taxpayer exercising
ordinary business care and prudence that duplicating automobile
expenses (by deducting not only car and truck expenses based on
actual costs but also driving expenses calculated using the
standard mileage rate) is prohibited.
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
Last modified: March 27, 2008