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Commissioner proves that any portion of the underpayment is
attributable to fraud, the entire underpayment is treated as
attributable to fraud, except with respect to any portion which
the taxpayer establishes is not attributable to fraud.
In the instant case, the Atkinsons concede that they
fraudulently failed to include in income the construction
expenses. Therefore, pursuant to amended section 6653(b)(2), the
underpayment associated with the failure to include in income the
construction expenses and the credit card charges is treated as
attributable to fraud unless the Atkinsons prove otherwise. The
Atkinsons have failed to prove that the failure to include in
income the credit card charges is not attributable to fraud.
Hence, the fraud additions to tax determined by respondent under
amended section 6653(b)(1)(A) and (B) are sustained.
III. Substantial Understatement of Tax
The final issue for decision is whether petitioners are
liable for the addition to tax under section 6661. For
assessments made after October 21, 1986, section 6661(a) provides
for an addition to tax equal to 25 percent of the amount of any
underpayment attributable to a substantial understatement of tax.
See Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509,
sec. 8002(a), 100 Stat. 1874, 1951. An understatement is
substantial if it exceeds the greater of $5,000 ($10,000 in the
case of a corporation) or 10 percent of the tax required to be
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