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National. Our conclusion obviates the need to address
respondent's alternative positions regarding this issue.
Issue 2. Whether Petitioners Are Liable for the Section 6662
Accuracy-Related Penalty for a Substantial Understatement of Tax
Respondent determined that petitioners are liable for the
accuracy-related penalty under section 6662(a) for 1989. Section
6662, which is applicable to returns due after December 31, 1989,
imposes a penalty in an amount equal to 20 percent of the
underpayment of tax resulting from a substantial understatement
of tax. Sec. 6662(a). Petitioners bear the burden of proving
that respondent's determination is erroneous. Rule 142(a); Luman
v. Commissioner, 79 T.C. 846, 860-861 (1982).
An understatement is equal to the excess of the amount of
tax required to be shown in the return less the amount of tax
shown in the return. Sec. 6662(d)(2)(A). An understatement is
substantial in the case of an individual if it exceeds the
greater of 10 percent of the tax required to be shown in the
return or $5,000. Sec. 6662(d)(1)(A). An understatement is
reduced to the extent it is based on substantial authority, or
adequately disclosed in the return or in a statement attached
thereto. Sec. 6662(d)(2)(B).
The accuracy-related penalty under section 6662 does not
apply with respect to any portion of an underpayment if it is
shown that there was reasonable cause for such portion of the
underpayment and that the taxpayer acted in good faith with
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