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By failing to seek outside or independent counsel, petitioners
negligently failed to investigate the business properly.
On this record, we conclude that the underpayment of tax was
due to negligence. Accordingly, respondent is sustained on this
issue.
Respondent also determined that petitioners are liable for
the addition to tax for substantial understatement of tax
pursuant to section 6661. Section 6661 imposes an addition to
tax, for additions assessed after October 21, 1986, equal to 25
percent of any underpayment of income tax attributable to a
substantial understatement. Omnibus Budget Reconciliation Act of
1986, Pub. L. 99-509, sec. 8002, 100 Stat. 1874, 1951; Pallottini
v. Commissioner, 90 T.C. 498 (1988). Petitioners bear the burden
of proving they are not liable for this addition to tax. Rule
142(a); Kings's Court Mobile Home Park, Inc. v. Commissioner, 98
T.C. 511, 517 (1992).
An understatement is defined as the excess of the amount of
tax required to be shown on the return over the amount of tax
imposed which is shown on the return, reduced by any rebate.
Sec. 6661(b)(2)(A). There is a substantial understatement if the
amount of the understatement for the taxable year exceeds the
greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6661(b)(1)(A). For the taxable year in
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