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understatement. An understatement is substantial if it exceeds
the greater of 10 percent of the tax required to be shown or
$5,000. Sec. 6661(b)(1)(A). An "understatement" is defined as
the excess of the tax required to be shown on the return over the
tax actually shown on the return. Excepting items attributable
to tax shelters, the amount of the understatement is reduced by
items with respect to which the taxpayer had substantial
authority for his or her position or for which relevant facts
affecting the tax treatment were adequately disclosed. Sec.
6661(b)(2)(B).
Petitioners provided no evidence to show that they had
substantial authority for the understatements, and their tax
returns did not disclose the relevant facts sufficiently to
enable respondent to identify the potential controversy involved.
See Schirmer v. Commissioner, 89 T.C. 277, 285-286 (1987).
Instead, petitioners relied on the evidence they presented to
prove that Frank and Katherine did not underreport their income
for any of the years in issue, and hence there were no
deficiencies for those years, to prove that the additions to tax
under section 6661 would not apply. We have found that the
evidence supports respondent’s position that Frank and Katherine
understated their income for the years in issue. Accordingly, we
sustain respondent's determination under section 6661 for 1983
through 1988.
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