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Section 6661
Respondent determined that petitioners are liable for the
section 6661 addition to tax for 1987 and 1988. Petitioners bear
the burden of proving that respondent’s determination is not
correct. Rule 142(a); Cluck v. Commissioner, 105 T.C. at 339.
Section 6661(a) provides for an addition to tax on underpayments
attributable to a substantial understatement of income tax.
Section 6661(b)(2)(A) defines the term “understatement” as being
the excess of the amount of tax required to be shown on the
return for the taxable year over the amount shown on the return.
An understatement is substantial if it exceeds the greater of
10 percent of the tax required to be shown on the return or
$5,000. Sec. 6661(b)(1)(A). The deficiencies to which
petitioners agreed for 1987 and 1988 represent substantial
understatements in each year.
The section 6661 addition to tax is not applicable, however,
if there was substantial authority for the taxpayers’ treatment
of the items in issue or if the relevant facts relating to the
tax treatment were adequately disclosed on the return. Sec.
6661(b)(2)(B)(i) and (ii). Petitioners did not present any
evidence at trial that would support a claim that there was
substantial authority for their treatment of the items in issue
or that the treatment was adequately disclosed on their returns.
Accordingly, we conclude that petitioners are liable for the
additions to tax under section 6661 for 1987 and 1988.
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Last modified: May 25, 2011