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activity losses with respect to the Hawaiian condominiums (which as
a result of our holding above refers only to the Molokai condo).
Petitioners did not address this matter on brief, but generally
suggested at trial that they had substantial authority for the
reporting of their rental activities.
A substantial understatement means an understatement which
exceeds the greater of 10 percent of the tax required to be shown
on the return or $5,000. Sec. 6662(d)(1). The understatement is
reduced by that portion of the understatement for which the
taxpayer had substantial authority. Sec. 6662(d)(2)(B)(i).
The substantial authority standard requires an objective
examination of the law and the application of the law to the
relevant facts. Sec. 1.6662-4(d)(2), Income Tax Regs. There is
substantial authority for the tax treatment of an item only if the
weight of the authorities supporting the treatment is substantial
in relation to the weight of authorities' supporting contrary
treatment. Sec. 1.6662-4(d)(3)(i), Income Tax Regs. Among the
authorities a taxpayer may rely upon are IRS information or press
releases, and notices, announcements, and other administrative
pronouncements published in the Internal Revenue Bulletin by the
IRS. Sec. 1.6662-4(d)(3)(iii), Income Tax Regs.
Mr. Pohoski testified that he relied upon IRS Publication 925,
Passive Activity and At-Risk Rules. Assuming arguendo that
Publication 925 is authority, Mr. Pohoski testified that he only
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