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the amount of the understatement is reduced by the portion of it
that is attributable to the tax treatment of any item with
respect to which the taxpayer has or had substantial authority
for his or her position and for which the taxpayer reasonably
believed that the tax treatment was more likely than not the
proper treatment. Sec. 6661(b)(2)(B) and (C).
Petitioners argue that they had substantial authority for
the loss of $13,919 and the investment tax credit of $20,899 that
they claimed in their 1983 return with respect to Ridge Energy,
but they presented no evidence and make no argument that they
believed that that return position regarding those items was more
likely than not the proper treatment. Petitioners further argue
that they reasonably and in good faith relied upon their tax
adviser in claiming those items and that they are not liable for
the addition to tax under section 6661(a).
Respondent counters that petitioners did not have substan-
tial authority for the tax treatment of the items that they
claimed in their 1983 return with respect to Ridge Energy, that
it was not reasonable for them to rely on their tax adviser, and
that therefore petitioners are liable for the addition to tax
under section 6661(a).
The regulations under section 6661 provide in pertinent
part:
7(...continued)
F.3d 954 (9th Cir. 1993).
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