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substantial understatement of income tax. A substantial
understatement in the case of a corporation is an understatement
that exceeds the greater of (1) 10 percent of the tax required to
be shown on the return, or (2) $10,000. Sec. 6661(b)(1). If the
taxpayer has substantial authority for the tax treatment of the
item in question, or if the taxpayer adequately discloses the tax
treatment of the item on the return, then the amount of the
understatement for purposes of this section will be reduced by
that portion of the understatement which is attributable to that
item. Sec. 6661(b)(2)(B).
Petitioner made no disclosures on its return, so we need
only consider whether substantial authority exists for
petitioner's tax treatment of any of the items leading to the
understatement. "There is substantial authority for the tax
treatment of an item only if the weight of the authorities
supporting the treatment is substantial in relation to the weight
of authorities supporting contrary positions." Sec. 1.6661-
3(b)(1), Income Tax Regs. The substantial authority standard is
less stringent than a "more likely than not" standard, but
stricter than a reasonable basis standard. Sec. 1.6661-3(a)(2),
Income Tax Regs.
As was stated above, the test under North Carolina law for
determining whether a conveyance with an option to repurchase
represents a true sale or merely a loan with a security interest
focuses on the intent of the parties. Redic v. Gary H. Watts
Realty Co., 762 F.2d at 1185. This intention must be established
by the facts and circumstances. Id. at 1186. Our consideration
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