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Sec. 6661(a); Pallottini v. Commissioner, 90 T.C. 498, 500-503
(1988). A substantial understatement of income tax is defined as
an understatement of tax that exceeds the greater of 10 percent
of the tax required to be shown on the return for the year or
$5,000, whichever is greater. Sec. 6661(b)(1)(A). An
understatement is the amount required to be shown on the return
less the amount actually shown on the return. Sec.
6661(b)(2)(A). The Commissioner may waive the addition to tax if
the taxpayer had reasonable cause for the understatement and
acted in good faith. Sec. 6661(c). Petitioners bear the burden
of proving that respondent's imposition of additions to tax under
section 6661 is erroneous. Rule 142(a); Tweeddale v.
Commissioner, 92 T.C. 501, 506 (1989).
Petitioners did not present any evidence at trial which
would prove that the Takaos had reasonable cause for the
understatement or that they acted in good faith in omitting the
income from their 1988 return. Accordingly, we sustain
respondent's determination as to the addition to tax under
section 6661 for 1988.
Toraya
Office Expenses Deduction
In the notice of deficiency for 1988 and 1989, respondent
determined that Toraya was not entitled to deduct $9,733 and
$12,000, respectively, for "Office Expenses" claimed on Toraya's
returns for those years. In a stipulation of settled issues,
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