20
Court indicate that petitioners did not have an actual and honest
objective to make a profit by continuing the ranching activity.
We hold that petitioners have failed to prove that respondent's
determination was in error.
C. Section 6662(a)--Accuracy-Related Penalty
Section 6662(a) and (b)(2) imposes a penalty of 20 percent
of any part of the underpayment attributable to a substantial
understatement of income tax. The understatement is substantial
if it exceeds the greater of 10 percent of the proper tax or
$5,000. Sec. 6662(d)(1)(A). The penalty will be reduced for any
portion for which there was substantial authority for the
position of the taxpayer, or where the relevant facts affecting
the treatment of the item were adequately disclosed on the
return. Sec. 6662(d)(2)(B).
The standard for determining whether there is in fact
substantial authority for a position is whether the weight of the
authorities supporting that position is substantial in relation
to the weight of authorities supporting contrary positions.
Schirmer v. Commissioner, 89 T.C. 277, 283 (1987); sec. 1.6661-3,
Income Tax Regs. On brief, petitioners referred to sections 162
and 183, which they assert allow for deductions for ordinary and
necessary business expenses. They also point out that the
Service has never challenged their business intent in prior
years, despite similar positions, and therefore their reliance on
the Service's position is warranted.
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