11
The Service's Not-So-Kind-and-Gentle-Approach to Loan
Restructurings Between Related Entities," 6 Journal of S
Corporation Taxation 297 (1995). Conceivably, a trial might have
provided the necessary flesh on the bones of the transactions
involved herein. But petitioners chose to submit this case fully
stipulated and must suffer the consequences of their choice. Cf.
King's Court Mobile Home Park v. Commissioner, 98 T.C. 511, 516
(1992).
Section 6661 Addition to Tax
Section 6661(a) provides for an addition to tax on
underpayments attributable to a substantial understatement of
income tax. Section 6661(b)(2)(A) defines the term
"understatement" as the excess of the amount of tax required to
be shown on the return for the taxable year over the amount shown
on the return. An understatement is substantial if it exceeds
the greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6661(b)(1)(A). Our denial of
petitioner's passthrough loss from ABDC results in an
understatement greater than $5,000.
The section 6661 addition to tax is not applicable, however,
if there was substantial authority for petitioners' treatment of
6(...continued)
the taxpayer-shareholders' funds had found their way to the S
corporation to whom the taxpayer-shareholder became indebted,
albeit we were unwilling to treat those funds as having been
initially advanced on his behalf.
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