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that the tax treatment of the items giving rise to the losses
from either the computer equipment activity or the
telecommunications activity was more likely than not the proper
treatment.
Accordingly, petitioners cannot claim that there was
substantial authority that would allow them to reduce the amounts
of understatements on their returns. See sec. 6661(b)(2)(b)
and (c). Other than substantial authority, petitioners have set
forth no other pertinent defenses to the additions for
substantial understatement of liability. We find that
petitioners are liable for such additions as determined by
respondent.
III. Increased Interest
Respondent also seeks increased interest pursuant to section
6621(c). That section provides for an increase in the interest
rate to 120 percent of the statutory rate on underpayments of tax
if a substantial understatement is due to a tax-motivated
transaction. Certain transactions are deemed to be "tax
motivated" by section 6621(c)(3), including any loss disallowed
under section 465(a). Sec. 6621(c)(3)(A)(ii). Since we have
concluded that the loss deductions in issue stemming from the
installment notes are disallowed under section 465(a), we also
find that the activities were tax-motivated transactions, and
respondent is entitled to additional interest on the interest
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