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Issue 4. Substantial Understatement Additions to Tax
The next issue is whether petitioners are liable for the
additions to tax for substantial understatements of income tax
pursuant to section 6661 for the years in issue. Section 6661(a)
imposes an addition to tax on any underpayment attributable to a
substantial understatement of income tax. An understatement of
income tax is substantial if it exceeds the greater of 10 percent
of the tax required to be shown on the return or $5,000. The
section 6661 addition to tax is 25 percent of the underpayment
attributable to such understatement. The understatement is reduced
if it is based on substantial authority or is adequately disclosed
on the return or in a statement attached to the return.
With respect to the additions to tax under section 6661, the
burden of proof is on petitioners. Rule 142(a); King's Court
Mobile Home Park v. Commissioner, 98 T.C. 511, 517 (1992).
Petitioners presented no evidence showing that they did not
substantially understate their income taxes. Their understatements
for the years in issue were neither based on substantial authority
nor adequately disclosed on their returns or in a statement
attached to their returns. Accordingly, we sustain respondent's
determination as to these additions to tax.
Issue 5. Statute of Limitations
The final issue is whether respondent is barred by the statute
of limitations from assessing and collecting petitioners' Federal
income taxes for the years under consideration.
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