54
Former section 6661(a) provides for an addition to tax equal
to 25 percent of the amount attributable to a substantial
understatement of income tax. An understatement is substantial
if it exceeds the greater of 10 percent of the tax required to be
shown on the return or $10,000 in the case of a corporation.
Sec. 6661(b)(1)(A) and (B). An understatement of income tax
occurs if the tax actually shown on the return is less than the
amount required to be shown on the return. Sec. 6661(b)(2);
Woods v. Commissioner, 91 T.C. 88, 95 (1988). Petitioners bear
the burden of proving that respondent's determination is
erroneous. Rule 142(a); Conti v. Commissioner, 39 F.3d 658, 664
(6th Cir. 1994), affg. and remanding 99 T.C. 370 (1992).
Alondra reported total tax due for Alondra's fiscal 1987 of
$222,879. In computing this tax, Alondra claimed deductions for
rent, management fees, and wages that respondent disallowed. In
light of our findings on these issues, Alondra's understatement
of tax exceeds the threshold established by section 6661. Thus,
Alondra made a substantial understatement within the meaning of
section 6661(b).
Petitioners argue, as they do for the negligence additions
to tax, that they reasonably relied on competent professional
advice. We reject this argument here as well, just as we do for
the negligence additions to tax, and for the same reasons.
An understatement will be reduced to the extent that it is:
(1) Based on substantial authority or (2) adequately disclosed in
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