Richard Santulli and Virginia Santulli - Page 42

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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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