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Issue 4. Addition to Tax, Section 6661
Respondent determined that petitioners are liable for the
addition to tax pursuant to section 6661 for taxable years 1987
and 1988 due to a substantial understatement of income tax.
Respondent's determination carries with it the presumption of
correctness. Rule 142(a).
The addition is 25 percent of any underpayment attributable
to a substantial understatement. Sec. 6661(a); Pallottini v.
Commissioner, 90 T.C. 498 (1988). A substantial understatement
is one which exceeds the greater of 10 percent of the tax
required to be shown on the return or $5,000. Sec.
6661(b)(1)(A). Petitioners make no argument or showing with
regard to substantial authority or adequate disclosure. Sec.
6661(b)(2)(B). Petitioners' alternative argument, which is
grounded on a theory of ignorance, is without substance.
The applicability of this addition to tax turns on the
recomputation of petitioners' tax liabilities for 1987 and 1988
in accordance with this opinion. If such recomputation reflects
substantial understatements, petitioners are liable for these
additions to tax.
To reflect the foregoing,
Decision will be
entered under Rule 155.
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