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Respondent, by allowing petitioners to deduct amounts equal to
the medical center's gross rents, had allowed deductions in
excess of those substantiated by petitioners. Therefore, we hold
that petitioners have not substantiated deductions in the
aggregate in excess of that allowed by respondent.
The issues of limitation of loss under section 465 and
section 469 passive loss limitations are thus rendered moot and
need not be addressed.
4. Substantial Understatement
Section 6661 provides for a 25-percent addition to tax on
any substantial understatement. Pallottini v. Commissioner, 90
T.C. 498 (1988). A substantial understatement is one that
exceeds the greater of 10 percent of the tax required to be shown
on the return or $5,000. Sec. 6661(b)(1). The amount of the
understatement, for purposes of section 6661, is to be reduced by
the portion attributable to any item for which there was
substantial authority or any item that was adequately disclosed.
Sec. 6661(b)(2)(B).
Petitioners have not argued that they had either substantial
authority or adequate disclosure on their tax returns; rather,
they argue that the Commissioner abused her discretion by not
waiving the addition to tax. The Secretary may waive all or part
of a section 6661 addition to tax upon a showing by the taxpayer
that there was reasonable cause for the understatement and that
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