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Respondent also determined additions to tax under section
6661 against individual petitioners for 1987 and 1988 and against
Eastimpex for taxable year ending March 31, 1988. Section
6661(a) provides an addition to tax of 25 percent of the amount
of any underpayment attributable to a substantial understatement
of 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 ($10,000 in the case of corporate petitioner).
Sec. 6661(b)(1)(A). The amount of the understatement can be
reduced if substantial authority existed for the taxpayer's
treatment of the item in dispute. Sec. 6661(b)(2)(B).
Respondent determined an accuracy-related penalty against
individual petitioners under section 6662(a) for 1989. Section
6662(a) imposes a penalty of 20 percent of the portion of an
underpayment attributable to one or more of the items set forth
in section 6662(b). In the notice of deficiency, respondent
determined that petitioners' underpayment was due to: (1)
Negligence or disregard of rules or regulations, (2) a
substantial understatement of tax, or (3) a substantial
overvaluation statement. See sec. 6662(b)(1)-(3). The section
6662 accuracy-related penalty does not apply with respect to any
portion of an underpayment if reasonable cause exists for the
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