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Accordingly, we hold, to the extent that underpayments
exist, petitioners are liable for the additions to tax under
section 6653(a)(1)(A) and (B) for the 1986 taxable year and the
accuracy-related penalty under section 6662(a) for the 1989
taxable year.
H. Substantial Understatement
For 1986, section 6661 provides that if there is an
understatement of income tax for any tax year which exceeds the
greater of 10 percent of the tax required to be shown on the
return for the tax year or $5,000, an addition to tax shall be
imposed. The understatement is reduced by section 6661(b)(2)(B)
by that portion for which there is “substantial authority” or
that has been “adequately disclosed”.
For 1989, section 6662(a) and (b)(2) provides that if any
portion of an underpayment is attributable to a substantial
understatement of income tax, then there shall be added to the
tax an amount equal to 20 percent of the amount of the
underpayment.
Petitioners have not offered any probative evidence to
support their claimed Schedule C deductions or to show why they
failed to include income and/or disclose liability for all self-
employment tax in 1989. Therefore, petitioners did not
adequately disclose their earned compensation, and no substantial
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