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In light of the above, we find that petitioner is liable for
the additions to tax for fraud for each of the years in issue.
Substantial Understatement Under Section 6661(a)
Section 6661(a) provides that if there is a substantial
understatement of income tax for any taxable year, there shall be
added to the tax an amount equal to 25 percent of the amount of
any underpayment attributable to such understatement. Pallottini
v. Commissioner, 90 T.C. 498 (1988). The amount of the
understatement is equal to the excess of the amount of tax
required to be shown on the return for the tax year over the
amount of the tax shown on the return. Woods v. Commissioner, 91
T.C. 88, 94 (1988). An understatement is substantial if it
exceeds the greater of 10 percent of the tax required to be shown
on the return for the taxable year or $5,000. Sec. 6661(b)(1).
The amount of the understatement under this section shall be
reduced if there was substantial authority for the tax treatment
of the item by the taxpayer or if the relevant facts affecting
the item are adequately disclosed on the return. Neither
exception applies here. Therefore, we find that petitioners are
liable for the addition to tax for substantial understatement.
To reflect a concession by respondent,
Decision will be entered
under Rule 155.
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