- 47 -
to income it diverted from Reaves Livestock to the First Citizens
accounts.
The time to assess tax owed by Reaves Livestock did not
expire for any of the years in issue because Reaves Livestock is
liable for fraud in 1984, 1985, 1986, and 1987. Sec. 6501(c)(1).
E. Addition to Tax for Substantial Understatement
Respondent contends that Mr. and Mrs. Reaves and Reaves
Livestock are liable for the addition to tax for substantial
understatement of tax for 1984, 1985, 1986, and 1987.
Section 6661(a) imposes an addition to tax of 25 percent of
the amount of any underpayment attributable to a substantial
understatement of tax. Pallottini v. Commissioner, 90 T.C. 498
(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 the addition to tax under section 6661 does not
apply.8 Rule 142(a); Tweeddale v. Commissioner, 92 T.C. 501, 506
(1989).
8 Petitioners do not contend that they have substantial
authority or that they adequately disclosed the understatement
under sec. 6661(b)(2)(B)(i) and (ii).
Page: Previous 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 NextLast modified: May 25, 2011