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balance.5 Accordingly, respondent’s determination is sustained
on this issue. Rule 142(a); Welch v. Helvering, supra.
B. Section 6662(a) Penalty
In the notice of deficiency, respondent determined that
petitioner is liable under section 6662(a) for an underpayment of
tax that is attributable to substantial understatement of income
tax.
Section 6662(a) imposes a penalty equal to 20 percent of any
underpayment of tax that is attributable to substantial
understatement of income tax. See sec. 6662(a) and (b)(2). An
understatement of income tax is “substantial” if it exceeds the
greater of 10 percent of the tax required to be shown on the
return, or $5,000. Sec. 6662(d)(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. Sec.
6662(d)(2)(A). Tax is not understated to the extent that the
treatment of the item related thereto is based on substantial
authority or is adequately disclosed in the return or in a
statement attached to the return, and there is a reasonable basis
for the tax treatment of such item by the taxpayer. Secs.
6662(d)(2)(B), 6664(c)(1).
5 There is evidence in the record, including petitioner’s
own testimony, to suggest that petitioner was not able to pay his
credit card debt without financial hardship.
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