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Respondent has determined additions to tax under section
6661 for 1987 and 1988. Section 6661(a) provides for an addition
to the tax for any year for which there is a substantial
understatement of income tax. A substantial understatement is
defined as an understatement that exceeds the greater of
10 percent of the tax required to be shown on the return for the
year or $5,000. Sec. 6661(b)(1)(A). The amount of the addition
to tax is 25 percent of the underpayment attributable to a
substantial understatement. Pallottini v. Commissioner, 90 T.C.
498 (1988). The amount of the understatement, however, is
reduced by amounts attributable to items for which (1) there
existed substantial authority for the taxpayer's position, or
(2) where the taxpayer disclosed relevant facts concerning the
items with his tax return. Sec. 6661(b)(2)(B). Respondent may
waive all or part of the section 6661 addition to tax on a
showing by the taxpayer that there was reasonable cause for the
understatement (or part thereof) and that the taxpayer acted in
good faith. Respondent has determined that all of petitioners'
underpayments of income tax liability for 1987 and 1988 are
attributable to substantial understatements of income tax
liability.
Due to (1) our decision with regard to the depreciation
issue and (2) concessions made by the parties, we are unable to
determine whether there are substantial understatements of income
for 1987 and 1988. We can, however, address the single remaining
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