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the position taken is adequately disclosed,24 the position is not
"frivolous", and the taxpayer has adequate books and records and
has substantiated items properly. Sec. 1.6662-3(c), Income Tax
Regs. A "frivolous" position with respect to an item is one that
is "patently improper". Sec. 1.6662-3(b)(3), Income Tax Regs.
Respondent's regulations provide two types of disclosure
under section 6662(b)(1): Disclosure in statements attached to
the return, sec. 1.6662-4(f)(1), Income Tax Regs., and disclosure
on the return, sec. 1.6662-4(f)(2), Income Tax Regs. Petitioner
did not attach a statement to its return; therefore, we look to
the disclosure on the return to decide whether disclosure was
adequate.
The Commissioner may by annual revenue procedure (or
otherwise) prescribe the circumstances under which disclosure of
information on a return in accordance with applicable forms and
instructions is adequate.25 Sec. 1.6662-4(f)(2), Income Tax
24 The Omnibus Budget Reconciliation Act of 1993 (the
Act), Pub. L. 103-66, sec. 13251, 107 Stat. 531, made certain
changes to the accuracy-related penalties in sec. 6662 for tax
returns due (without regard to extensions) after Dec. 31, 1993.
One of the changes was that the penalty for negligence in
sec. 6662(b)(1) may not be avoided by disclosure of a return
position. H. Conf. Rept. 103-66, at 668-669 (1993), 1993-3 C.B.
393, 546-547. However, the changes to the penalties for
negligence and disregard of the rules or regulations provided by
the Act do not apply to returns (including qualified amended
returns) filed on or before Mar. 14, 1994. Sec. 1.6662-2(d)(2),
Income Tax Regs. Jack, as executor, filed this estate tax return
on Feb. 18, 1991; thus, these changes are not applicable.
25 In deciding whether petitioner's disclosure was
(continued...)
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