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Section 6661(a) provides for an addition to tax equal to 25
percent of the amount of any underpayment attributable to a
substantial understatement. An understatement is substantial
when the understatement for the taxable year exceeds the greater
of (1) 10 percent of the tax required to be shown on the return
or (2) $5,000. The understatement is reduced to the extent that
the taxpayer (1) has adequately disclosed his or her position or
(2) has substantial authority for the tax treatment of an item.
See sec. 6661(b); sec. 1.6661-6(a), Income Tax Regs.
Petitioners made no argument that there was adequate
disclosure, nor have they produced substantial authority for
their position. The deficiency upon which the addition to tax
was imposed was $9,286. The understatement is substantial
because it exceeds the greater or $5,000 or 10 percent of the
amount required to be shown on the return. Accordingly, we
sustain respondent’s determination.
To reflect the foregoing,
Decision will be entered
for respondent.
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Last modified: May 25, 2011