- 10 -
Consequently, we conclude that petitioner did not exercise
the care of a reasonably prudent tax lawyer and is therefore
liable for the addition to tax for negligence.
II. Addition to Tax for Substantial Understatement Under Section
6661(a)
In the case of a substantial understatement, section 6661(a)
provides for an addition to tax in the amount of 25 percent of
the amount of any underpayment attributable to such
understatement.1 An "understatement" is the excess of the amount
of tax required to be shown on the return over the amount
actually shown on the return. Sec. 6661(b)(2)(A). An
understatement is "substantial" (in the case of a noncorporate
taxpayer) if the amount of the understatement exceeds the greater
of (1) 10 percent of the tax required to be shown on the return,
or (2) $5,000. The amount of the understatement generally is
reduced by the portion of the understatement attributable to
(1) the tax treatment of an item if there was substantial
authority for such treatment, or (2) any item with respect to
which the relevant facts affecting the item's tax treatment are
adequately disclosed in the return or in a statement attached to
the return. Sec. 6661(b)(2)(B).
To prove that substantial authority exists in the case of a
tax shelter, section 6661(b)(2)(C)(i)(II) provides that the
taxpayer must establish that he reasonably believed that the
1 This rule is applicable to returns due in 1984 where an
assessment is made after Oct. 21, 1986. Pallottini v.
Commissioner, 90 T.C. 498 (1988).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011