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Issue 5. Substantial Understatement Additions to Tax
The fifth issue for decision is whether petitioners are liable
for additions to tax for the substantial understatement of tax for
1986, 1987, and 1988 and an accuracy-related penalty for
substantial understatement of tax for 1990. Respondent determined
additions to tax for the substantial understatement of tax pursuant
to section 6661 for 1986, 1987, and 1988, and an accuracy-related
penalty pursuant to section 6662 for 1990.7 Mrs. Zaban asserts
that she had reasonable cause and acted in good faith for those
years and thus is excepted from the substantial understatement
addition to tax and the accuracy-related penalty pursuant to
section 6664(c).
Mrs. Zaban's argument is without merit. The reasonable cause
exception to the addition to tax for the substantial understatement
of tax and the accuracy-related penalty for substantial
understatement of tax are not applicable to taxpayers filing tax
returns prior to December 31, 1989. Omnibus Budget Reconciliation
Act of 1989 (OBRA), Pub. L. 101-239, sec. 7721(a), 103 Stat. 2106,
2395. Thus, the reasonable cause exception does not apply to
7 For tax years 1986, 1987, and 1988, sec. 6661 imposed
additions to tax of 25 percent of the amount of any underpayment
attributable to a substantial understatement. A substantial
understatement is defined as an understatement which exceeds the
greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6661(b).
For tax year 1990, sec. 6662 imposed an accuracy-related
penalty of 20 percent of the underpayment attributable to a
substantial understatement.
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