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return for the year the disclosure applies. See id. Disclosure
of a recurring item must be made for each year in which the item
is taken into account. See id.
In the notices of deficiency for 1989 through 1994 and 1996,
respondent proposed several adjustments with respect to Henry and
Esther’s tax returns. Most of those adjustments were settled
before trial or are computational. As to those items settled in
favor of respondent, Henry and Esther made no showing at trial,
and did not argue on brief, that their tax treatment of those
items was supported by substantial authority or by adequate
disclosure as defined by section 1.6662-4(f)(1) and (2), Income
Tax Regs. Henry and Esther’s only argument in support of their
position that they should not be liable for the penalties was
contained in their reply brief and was limited to the covenant
not to compete payments that were applied to the FirsTier note
and the Chevrolet debt. Consequently, we hold that Henry and
Esther have failed to prove that the section 6662 penalty should
not apply with respect to the settled and computational issues.
See Rule 149(b).
With respect to the covenant not to compete payments,
although Henry and Esther failed to address the section 6662
penalties in their opening brief, they did argue in their reply
brief that the accuracy-related penalty should not be imposed
with respect to the HJA payments applied to the FirsTier note and
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