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Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509, sec.
8002(c), 100 Stat. 1874, 1951; Licari v. Commissioner, 946 F.2d
690, 692 (9th Cir. 1991), affg. T.C. Memo. 1990-4; Pallottini v.
Commissioner, 90 T.C. 498 (1988).
Section 6661(b)(1)(A) provides that a substantial
understatement of income tax exists if the amount of the
understatement exceeds the greater of: (1) 10 percent of the tax
required to be shown on the return; or (2) $5,000. An
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 imposed which is shown in the return, reduced by
any rebate. Sec. 6661(b)(2)(A). In the instant case,
petitioners' understatements of income tax for 1983 and 1984 are
$12,387 and $12,577, respectively, and are therefore substantial.
The entire amounts of the understatements are due to petitioners'
disallowed losses and investment tax credits claimed with respect
to the Barrister partnership.
In general, section 6661(b)(2)(B) provides that the
understatement is deemed to be reduced to the extent it is
attributable to: (1) The tax treatment of an item for which
there was substantial authority; or (2) 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. In the case of items attributable to a tax shelter,
the understatement may not be reduced by reason of disclosure,
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