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be shown on the return, or (2) $5,000. By this definition the
understatements for both years were substantial and the 25
percent addition to tax applies.
Under section 6661(b)(2), which defines an understatement,
petitioners' deficiencies in the amounts of $67,485 for 1987 and
$49,419 for 1988 constituted understatements. Section
6661(b)(2)(B) provides for a reduction for an understatement (1)
if there was substantial authority for the tax treatment of the
subject item, or (2) if the subject item's tax treatment was
adequately disclosed on the return. Petitioners' understatements
do not qualify for any reductions under this definition.
Accordingly, respondent's determination on this issue is
sustained. Petitioners are liable for the section 6661(a)
additions to tax.
Issue 5. Additions to Tax for Negligence
Having found that petitioner is liable for the fraud
additions to tax for 1987 and 1988, it follows, as conceded by
respondent, that neither petitioner nor Mrs. McKenna is liable
for the additions to tax for negligence.
Issue 6. Statute of Limitations for 1987
Petitioners have affirmatively pleaded in their petition and
contend that the assessment of additional taxes for 1987 is
barred by expiration of the 3-year period of limitations under
section 6501(a). However, as provided in section 6501(c)(1), the
tax may be assessed at any time in the case of a false or
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