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(a) * * * If there is a substantial understatement of
income tax for any taxable year, there shall be added
to the tax an amount equal to 25 percent of the amount
of any underpayment attributable to such
understatement.
(b)(1)(A) * * * For purposes of this section, there is
a substantial understatement of income tax for any
taxable year if the amount of the understatement for
the taxable year exceeds the greater of
(i) 10 percent of the tax required to be shown on
the return for the taxable year, or
(ii) $5,000.
* * * * * * *
(b)(2)(B) * * * The amount of the understatement under
subparagraph (A) shall be reduced by that portion of
the understatement which is attributable to
(i) the tax treatment of any item by the taxpayer
if there is or was substantial authority for such
treatment, or
(ii) any item with respect to which the relevant
facts affecting the item's tax treatment are
adequately disclosed in the return or in a
statement attached to the return.
Petitioner has stipulated that he understated his income tax
liability for 1987 by $10,224. The correct liability, as agreed
by the parties, was $28,954. Ten percent of $28,954 is $2,895.
The amount of the understatement, $10,224, exceeds the greater of
$2,895 or $5,000. Therefore, under section 6661(b)(1)(A), there
has been a substantial understatement.
Petitioner does not dispute that there was a substantial
understatement of tax on his return for 1987. However, he makes
two arguments against imposition of the section 6661(a) addition.
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