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understatement is “substantial” if it exceeds the greater of
(1) 10 percent of the tax required to be shown on the return or
(2) $5,000. Sec. 6661(b)(1)(A). The understatement is reduced
to the extent that the taxpayer (1) has adequately disclosed his
or her position, or (2) has substantial authority for the tax
treatment of an item. Sec. 6661(b)(2)(B); sec. 1.6661-6(a),
Income Tax Regs. For 1985 and 1986, petitioner bears the burden
of proof as to the issue of his liability for the addition to tax
under section 6661. Rule 142(a); Cochrane v. Commissioner, 107
T.C. 18, 29 (1996).
Due to petitioners’ substantial unreported income for 1985
and 1986, petitioner’s income tax deficiencies for the taxable
years in issue trigger the substantial understatement addition to
tax under section 6661(b)(1). Petitioner has presented no
evidence to show that respondent erroneously determined the
additions to tax under section 6661. Petitioner is liable for
the additions to tax under section 6661 for 1985 and for 1986.
Section 6501(c)(1) expressly provides that in the case of a
false or fraudulent tax return with the intent to evade tax, the
tax may be assessed at any time. Petitioners’ argument that the
period of limitations on assessment with respect to their income
taxes for 1985 and 1986 expired before respondent issued the
notices of deficiency to petitioners is rejected.
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