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in 1994. On brief, respondent now concedes the penalty with
respect to the Polskys but argues that Indeck is liable for an
accuracy-related penalty due to an underpayment attributable to a
substantial understatement of tax or to negligence or disregard
of rules or regulations.
Section 6662 imposes a penalty equal to 20 percent of the
portion of an underpayment of tax that is attributable to
negligence or disregard of rules or regulations, or a substantial
understatement of income tax. See sec. 6662(a) and (b)(1) and
(2).
In the case of a corporation, 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 $10,000. Sec. 6662(d)(1). An “understatement” is
defined as the excess of tax required to be shown on the return
over the amount of tax imposed which is shown on the return, less
any rebate. Sec. 6662(d)(2)(A). The amount of the
understatement is reduced, however, to the extent it is
attributable to the tax treatment of any item for which there is
or was substantial authority for the treatment, and an authority
for this purpose includes a court case. Sec. 1.6662-
4(d)(3)(iii), Income Tax Regs.
Indeck marshaled a number of cases to support its treatment
of the disputed portion of the settlement payment. While we have
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