-45-
addition to tax is 25 percent of any underpayment attributable to
the understatement. Sec. 6661(a); Pallottini v. Commissioner, 90
T.C. 498, 503 (1988). A substantial understatement is one which
exceeds the greater of 10 percent of the tax required to be shown
on the return or $5,000. Sec. 6661(b)(1). The Commissioner may
waive this addition to tax if the taxpayer had reasonable cause
for the understatement and acted in good faith. Sec. 6661(c).
Petitioners contend that they did not substantially
understate their income for 1983, 1984, 1985, 1986, or 1987.
Petitioners raise no other defense. We hold that petitioners are
liable for the addition to tax under section 6661 if the Rule 155
computation shows that there is a substantial understatement.
F. Self-Employment Tax Under Section 1401
Section 1401 imposes a tax on net earnings from self-
employment, defined as gross income derived from carrying on a
trade or business, less allowable deductions. Sec. 1402(a); sec.
1.1401-1(c), Income Tax Regs. Petitioners did not argue this
issue at trial or on brief. We find that petitioners are liable
for self-employment tax for the years in issue.
To reflect the foregoing,
Decision will be
entered under Rule 155.
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Last modified: May 25, 2011