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petitioner. We note that sections 1.368-3(a), 1.355-5(a), and 1.351-
3(a), Income Tax Regs., also require disclosure of all plans of
reorganization, distributions of stock of a controlled subsidiary, and
transfers to controlled corporations, respectively. Because
petitioner failed to disclose the transactions at issue on its 1988
income tax return, the understatement may not be reduced on the ground
of adequate disclosure. Sec. 6661(b)(2)(B)(ii); sec. 1.6661-4, Income
Tax Regs.
Substantial authority is defined in section 1.6661-3(a)(2),
Income Tax Regs., as
less stringent than a “more likely than not” standard (that
is, a greater than 50-percent likelihood of being upheld in
litigation), but stricter than a reasonable basis standard
(the standard which, in general, will prevent imposition of
the penalty under section 6653(a), relating to negligence or
intentional disregard of rules and regulations). Thus, a
position with respect to the tax treatment of an item that
is arguable but fairly unlikely to prevail in court would
satisfy a reasonable basis standard, but not the substantial
authority standard.
With respect to the issue of whether Commissioner v. Court Holding
Co., 324 U.S. 331 (1945), controls the transactions in question,
petitioner has prevailed and thus had substantial authority for its
position with respect to the form of the transactions. Sec. 1.6661-
3(a)(2), Income Tax Regs.
Petitioner has not prevailed on the issue of whether section 355
confers nonrecognition of gain realized in the split-off. Petitioner
must therefore demonstrate that substantial authority supports the
positions taken on the income tax return with respect to those
transactions. Gallade v. Commissioner, 106 T.C. 355, 367 (1996); sec.
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