- 48 - received income from illegal sources in both years. He sought to conceal that income and its sources by not filing tax returns and paying taxes for 1986 and 1987. Petitioner presented no evidence that any portion of the income, and thus of the underpayment in either year, was not due to fraud. Petitioner is therefore liable for additions to tax for fraud on the entire underpayments for both years. Sec. 6653(b)(2). b. Substantial underpayment of tax--section 6661 For 1986 and 1987, section 6661 authorizes an addition to tax of 25 percent of any underpayment if there has been a substantial understatement of income. Pallottini v. Commissioner, 90 T.C. 498 (1988) (the applicable rate for assessments made after October 21, 1986, is 25 percent). The Code defines a substantial understatement as one that exceeds 10 percent of the tax required to be shown on the return or $5,000. Sec. 6661(b)(1)(A); Tweeddale v. Commissioner, 92 T.C. 501, 505 (1989); Woods v. Commissioner, 91 T.C. 88, 95 (1988). An understatement is the difference between the tax required to be shown on the return and the actual amount shown. Since petitioner failed to file returns for both years, the understatement for both years is the entire deficiency. Estate of McClanahan v. Commissioner, 95 T.C. 98, 103 (1990) (section 6661 applies both to taxpayers who fail to disclose adequately their taxable income and tax due on a return and to taxpayers who fail to file any return at all). The understatements from bothPage: Previous 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 Next
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