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We are not persuaded that petitioners' claimed reliance on
their advisers was reasonable. The record contains numerous
instances where petitioners' officers were aware of the rules and
regulations and either disregarded them or did not make a
reasonable attempt to comply with them. Therefore, we sustain
respondent's determination as to the negligence penalties.
VIII. Substantial Understatement and Increased Interest
A. Substantial Understatement
Section 6661 imposes an addition to tax in an amount equal
to 25 percent of the underpayment of income tax if the
underpayment is attributable to a substantial understatement.
Section 6661 applies to tax returns with a due date prior to
December 31, 1989. The section was repealed December 31, 1989,
and recodified in section 6662.
Section 6662(a) imposes a penalty in an amount equal to
20 percent of the portion of underpayment which is attributable
to any substantial understatement of income tax.
For purposes of sections 6661 and 6662(a), an understatement
is substantial if it exceeds the greater of 10 percent of the
correct tax or $5,000 or, in the case of a corporate taxpayer,
$10,000. Secs. 6661(b)(1)(A) and (B), 6662(d)(1)(A) and (B).
The term "understatement" is defined as the excess of the amount
of tax required to be shown on the return for the taxable year
over the amount of tax shown on the return for the taxable year
reduced by any rebate. Secs. 6661(b)(2), 6662(d)(2)(A). In
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