- 68 -
penalties assessed after October 21, 1986. Section 6661(b)(1) defines
a substantial understatement as any understatement that exceeds the
greater of $10,000 in the case of corporations, sec. 6661(b)(1)(B), or
10 percent of the tax required to be shown on the return for the
taxable year, sec. 6661(b)(1)(A)(i). An understatement of income tax
occurs when the tax actually shown on the return is less than the
amount required to be shown on the return. Sec. 6662(b)(2); Woods v.
Commissioner, 91 T.C. 88, 95 (1988). Petitioner bears the burden of
proving that respondent’s determination of the deficiency, the
understatement with respect to the deficiency, and the addition to tax
based on the understatement are erroneous. Rule 142(a); Conti v.
Commissioner, 39 F.3d 658, 664 (6th Cir. 1994), affg. on this issue
and remanding 99 T.C. 370 (1992).
Section 6661(b)(2)(B) provides a means to reduce the amount of
the addition to tax, stating that
The amount of the understatement * * * shall be reduced by
that portion of the understatement which is attributable to-
-
(i) the tax treatment of any item by the taxpayer
if there is or was substantial authority * * *, or
(ii) any item with respect to which the relevant
facts affecting the item’s tax treatment are adequately
disclosed in the return or in a statement attached to
the return.
Petitioner failed to disclose on its 1988 return or in a statement
attached to the return, as required by section 1.6661-4, Income Tax
Regs., the existence of its transfer of assets to SIC and its
distribution of SIC stock to Arnold in redemption of his stock in
Page: Previous 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 NextLast modified: May 25, 2011