- 21 -
to the additions to tax under section 6653(a) for 1986, 1987, and
1988 and the penalties under section 6662(a) for 1989 and 1990.
Section 6661(a) provides that "If there is a substantial
understatement of income tax for any taxable year, there shall be
added to the tax an amount equal to 25 percent of the amount of
any underpayment attributable to such understatement." See also
Pallottini v. Commissioner, 90 T.C. 498 (1988). There is a
substantial understatement if the amount of the understatement
exceeds the greater of $5,000 or 10 percent of the tax required
to be shown on the return. Sec. 6661(b)(1)(A). The amount of
the understatement shall be reduced if there is substantial
authority for the tax treatment of any item or there is
disclosure of the relevant facts affecting the item's tax
treatment. Sec. 6661(b)(2)(B). The understatements of tax here
essentially result from unreported income and the disallowed NOL
carryovers, and are substantial under section 6661(b)(1). There
was no substantial authority for either position taken, nor was
there adequate disclosure of the relevant facts. Therefore, we
sustain respondent's determinations with respect to the additions
to tax under section 6661(a) for 1986, 1987, and 1988.
Tax on Self-Employment Income
Section 1401(a) imposes a tax "on the self-employment income
of every individual". As we understand it, petitioner does not
dispute that he is liable for the tax. Rather, he contends that
his self-employment income should not be increased by the
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011