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Second, petitioner argues:
the failure of Respondent to object to this
treatment during examinations by Respondent
of Petitioner's returns in prior years,
although not rising to the level of estoppel,
tend[s] to support the inference that the
position adopted by Petitioner was not under-
taken without due regard for the rules and
regulations and was adequately disclosed.
As to petitioner's first argument, we agree that
for the purpose of determining whether the portion of
any underpayment is attributable to a "substantial under-
statement", the amount of the understatement is reduced
by that portion attributable to the "tax treatment of
any item by the taxpayer if there is or was substantial
authority for such treatment". Sec. 6662(d)(2)(B)(i).
However, we do not agree with petitioner's assertion that
there was substantial authority for the tax treatment of
petitioner's loss attributable to the Cloudia. For the
reasons discussed above, we have found that petitioner
did not engage in the Cloudia activity with an actual and
honest objective of making a profit. We know of no
authority that permits a deduction under section 212 for
the expenses paid or incurred with respect to such an
activity. See Antonides v. Commissioner, 91 T.C. 686,
704 (1988), affd. 893 F.2d 656 (4th Cir. 1990).
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