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A taxpayer is liable for an addition to tax for substantial
understatement equal to 25 percent of the understatement.5
Pallottini v. Commissioner, 90 T.C. 498 (1988). An understatement
is the excess of the corrected tax over the amount of tax
reflected on the return as filed. Sec. 6661(b)(2). An
understatement is "substantial" if it exceeds the greater of
$5,000 or 10 percent of the corrected tax. Sec. 6661(b)(1).
There was an understatement each year for the years in
issue. The understatements were "substantial" because they
exceeded the greater of $5,000 or 10 percent of the corrected
tax. Accordingly, the additions to tax under section 6661 are
sustained.
For the foregoing reasons,
Decision will be entered
under Rule 155.
5
This addition to tax does not apply to returns due
after Dec. 31, 1989.
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