- 71 -
the amount of any underpayment attributable to a substantial
understatement of tax. Pallottini v. Commissioner, 90 T.C. 498
(1988). An understatement is substantial if it exceeds the greater
of 10 percent of the correct tax or $5,000. Sec. 6661(b)(1)(A).
(Our holdings make it clear that petitioner has substantial
understatements for 1983, 1984, and 1985.)
If an item is not attributable to a tax shelter, then the
understatement shall be reduced on account of the item, and the
addition to tax accordingly reduced, if (1) the taxpayer's
treatment of the item was based on substantial authority, or (2)
the taxpayer adequately disclosed on the tax return or in a
statement attached to the tax return the relevant facts affecting
the item's tax treatment. Sec. 6661(b)(2)(B).
Respondent has authority to waive this addition to tax, if
the taxpayer shows there was reasonable cause for the
understatement and the taxpayer acted in good faith. Sec.
6661(c).
Petitioner has the burden of proving error in respondent's
determination that such an addition to tax should be imposed
against him. Rule 142(a); Welch v. Helvering, 290 U.S. at 115.
21(...continued)
of the Omnibus Reconciliation Act of 1986, Pub. L. 99-509, 100
Stat. 1874, 1951, amended sec. 6661(a) to apply to additions
assessed after the date of the enactment of this Act.
As a result of sec. 7721(c)(2) of OBRA 89, 100 Stat. 2399,
the substance of former sec. 6661 now appears as subsecs. (b)(2)
and (d) of sec. 6662.
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