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retroactively decide to make them interest bearing in an amount
equal to the AFR to achieve a more favorable tax result.
Based on the foregoing, we hold that dividend income was
properly imputed to petitioners under the provisions of section
7872 in 1987 and 1988 in the amount of $111,604 and $167,569,
respectively.
II. Are Petitioners Liable for Additions to Tax Under Section
6661 in 1987 and 1988 for a Substantial Understatement of Tax?
Respondent determined that petitioners are liable for
additions to tax for a substantial understatement of tax for 1987
and 1988 under section 6661.
As in effect for 1987 and 1988, section 6661(a) imposed an
addition to tax of 25 percent of the amount of any underpayment
attributable to a substantial understatement of tax. See
Pallottini v. Commissioner, 90 T.C. 498, 503 (1988). An
understatement is the amount by which the correct tax exceeds the
tax reported on the return. Sec. 6661(b)(2)(A). An
understatement is substantial if it exceeds the greater of 10
percent of the correct tax or $5,000 ($10,000 in the case of a
corporation). Sec. 6661(b)(1). Petitioners bear the burden of
proving that respondent's imposition of additions to tax under
section 6661 is erroneous. Rule 142(a); Tweeddale v.
Commissioner, 92 T.C. 501, 506 (1989).
Petitioners have adduced no evidence on this issue, nor did
they advance any reasons why the additions should not apply,
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