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100 Stat. 1874, 1951; Licari v. Commissioner, 946 F.2d 690, 692
(9th Cir. 1991), affg. T.C. Memo. 1990-4; Pallottini v.
Commissioner, 90 T.C. 498 (1988).
Section 6661(b)(1)(A) provided that a substantial
understatement of income tax exists if the amount of the
understatement exceeds the greater of 10 percent of the tax
required to be shown on the return or $5,000. An understatement
was defined as the excess of the amount of tax required to be
shown on the return for the taxable year over the amount of tax
imposed which is shown in the return, reduced by any rebate.
Sec. 6661(b)(2)(A).
In general, section 6661(b)(2)(B) provided that the
understatement is deemed to be reduced to the extent it is
attributable to: (1) The tax treatment of an item for which
there was substantial authority; or (2) any items with respect to
which the relevant facts affecting the item's tax treatment are
adequately disclosed in the return or in a statement attached to
the return.
At the time petitioners timely filed their Federal income
tax return for 1988 there was substantial authority for treating
some of the settlement payments petitioner received from the
credit union as excludable from his gross income. Damages to
professional or business reputation were excludable under section
104(a)(2) as being based on tort or tort type claims. Threlkeld
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