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II. Section 6661(a) Substantial Understatement of Tax Liability
The second issue for decision is whether petitioner is
liable for an addition to tax under section 6661(a). That
section, as amended by the Omnibus Budget Reconciliation Act of
1986, Pub. L. 99-509, sec. 8002, 100 Stat. 1951, provides for an
addition to tax of 25 percent of the amount of any underpayment
attributable to a substantial understatement of income tax.
Petitioner bears the burden of proving that he is not liable for
the addition to tax. Monahan v. Commissioner, 109 T.C. 235, 257
(1997); Mueller v. Commissioner, T.C. Memo. 2001-178.27
A substantial understatement of income tax exists if the
amount of the understatement exceeds the greater of 10 percent of
the tax required to be shown on the return, or $5,000. Sec.
6661(b)(1)(A). Generally, the amount of an understatement is
reduced by the portion of the understatement that the taxpayer
shows is attributable to either (1) the tax treatment of any item
for which there was substantial authority or (2) the tax
treatment of any item with respect to which the relevant facts
were adequately disclosed on the return. See sec. 6661(b)(2)(B).
Substantial authority exists when “the weight of the
authorities supporting the treatment is substantial in relation
to the weight of authorities supporting contrary positions.”
Sec. 1.6661-3(b)(1), Income Tax Regs. Adequate disclosure of the
27 See supra note 19.
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