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information which more accurately reflected his actual income
than did the returns he filed. Petitioner had business acumen
since he ran both an insurance and a rental business during the
years in issue. We hold that petitioner's entire underpayment
for each of the years 1984, 1985, 1986, and 1987 was attributable
to fraud.
C. Addition to Tax for Substantial Understatement of Tax
Liability
Section 6661 imposes an addition to tax for substantial
understatements of income tax. The amount of the section 6661
addition to tax for additions assessed after October 21, 1986,
equals 25 percent of the amount attributable to the substantial
understatement. Pallottini v. Commissioner, 90 T.C. 498, 500-503
(1988). An understatement is substantial if it exceeds the
greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6661(b)(1)(A). An understatement is
reduced to the extent it is based on the tax treatment of any
item regarding which: (1) There is or was substantial authority,
or (2) the relevant facts were adequately disclosed in the return
or in a statement attached to the return. Sec. 6661(b)(2).
Petitioner has failed to meet his burden of proof on this
issue. The understatements are substantial, and the record does
not establish that any of the understatements are reduced under
section 6661(b)(2). We sustain respondent's determination.
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