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imposition of the addition to tax or penalties for negligence for
each year.
For 1988, we apply the addition to tax to the entire
understatement of tax. Sec. 6653(a)(1). For years after 1988,
the penalty applies only to the portion of the understatement
attributable to negligence. Sec. 6662(a). For those years,
petitioners did not prove that any of the adjustments conceded by
the Takaos or decided by the Court in favor of respondent were
not attributable to negligence. Accordingly, for 1989 through
1991, we apply the penalty to the entire understatement of tax.
Section 6661
Respondent determined that the Takaos are liable for an
addition to tax for substantial underpayment of tax under section
6661 for 1988. Petitioners contend that the Takaos are not
liable for the addition to tax under section 6661, because they
relied in good faith on Nakamura to properly prepare their tax
returns for the years in issue. Respondent contends that the
Takaos are liable for the addition to tax under section 6661,
because petitioners failed to prove that the Takaos (1) acted in
good faith or had reasonable cause for the understatement of
income on the 1988 return or (2) disclosed the understatement on
their return for that year. We agree with respondent.
Section 6661 imposes an addition to tax of 25 percent of any
underpayment attributable to a substantial understatement of tax.
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