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increased deficiencies asserted in the amendment to answer to the
amended petition to the extent sustained herein.
Addition to Tax for Substantial Understatement of Income Tax
Issue
In the notice of deficiency, respondent determined that
petitioner is liable for the addition to tax under section 6661
for 1988 because he substantially understated his income tax. In
the amendment to answer to amendment to petition, respondent
asserts that petitioner is liable for the addition to tax for
substantial understatement of income for the issues raised in the
amendment to answer. Petitioner has the burden of proof as to
the issues raised in the notice of deficiency, and respondent has
the burden of proof for the new matter and increased deficiency
asserted in the amendment to answer. Rule 142(a).
Section 6661(a) imposes an addition to tax equal to 25
percent of the underpayment attributable to an understatement
where there is a substantial understatement of income tax. 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. The amount of the understatement is reduced
for section 6661 purposes by the portion of the understatement
which is attributable to the taxpayer’s treatment of an item if
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