- 12 -
Section 6661(b)(2)(B) provides that the understatement determined
under section 6661(b)(2)(A) must be reduced by the portion of the
understatement for which the taxpayer had "substantial
authority". A taxpayer has substantial authority where the
weight of the authorities supporting the taxpayer's position is
substantial in relation to the weight of authorities supporting
contrary positions. Sec. 1.6661-3(b)(1), Income Tax Regs.
The McCurleys contend that they have not understated their
income within the meaning of section 6661, because they had
substantial authority for characterizing the advances as loans.
They contend that four cases support treatment of the advances as
loans. See Pierce v. Commissioner, 61 T.C. 424 (1974); White v.
Commissioner, 17 T.C. 1562 (1952); Wiese v. Commissioner, 35
B.T.A. 701 (1937), affd. 93 F.2d 921 (8th Cir. 1938); Miller v.
Commissioner, T.C. Memo. 1980-445. None of these cases, however,
explicitly or implicitly provides that where a taxpayer does not
intend to repay an advance he is nevertheless justified in
reporting it as a loan. As a result, we reject their contention.
The McCurleys also contend that the understatement was due
to reasonable cause and that, as a result, respondent should have
waived the penalty. See sec. 6661(c). The standard of our
review is whether the Commissioner's failure to waive the penalty
was an abuse of discretion. Mailman v. Commissioner, 91 T.C.
1079 (1988). The McCurleys knew or should have known that the
advances were not bona fide loans. Therefore, their
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011