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investments during 1982, and incurred $2,538 in investment
expenses and $13,196 in investment interest expenses that year.
We uphold respondent’s determination that petitioners are
liable for the section 6653(a)(1) and (2) additions to tax for
negligence.
The second issue for decision is whether petitioners are
liable for the addition to tax under section 6661 for a
substantial understatement of tax. Section 6661(a), as amended
by the Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509,
sec. 8002, 100 Stat. 1951, provides for an addition to tax of 25
percent of the amount of any underpayment attributable to a
substantial understatement of income tax for the taxable year. A
substantial understatement of income tax exists if the amount of
the understatement exceeds the greater of 10 percent of the tax
required to be shown on the return, or $5,000. See sec.
6661(b)(1)(A). Generally, the amount of an understatement is
reduced by the portion of the understatement which the taxpayer
shows is attributable to either (1) the tax treatment of any item
for which there was substantial authority, or (2) the tax
treatment of any item with respect to which the relevant facts
were adequately disclosed on the return. See sec. 6661(b)(2)(B).
If an understatement is attributable to a tax shelter item,
however, different standards apply. First, in addition to
showing the existence of substantial authority, a taxpayer must
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