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required to be shown on the return or $5,000. Sec.
6661(b)(1)(A).
In general the amount of the understatement is reduced to
the extent an understatement is traceable to an item that is
either adequately disclosed or supported by substantial
authority. Sec. 6661(b)(2)(B). But this relief is curtailed if
the item that causes the understatement derives from a tax
shelter. An understatement derived from tax shelter items is not
reduced by disclosure. Sec. 6661(b)(2)(C)(i)(I). Further, in
addition to showing that an item attributable to a tax shelter is
supported by substantial authority, taxpayers must show they
reasonably believed their tax treatment of any tax shelter item
"was more likely than not the proper treatment." Sec.
6661(b)(2)(C)(i)(II). For purposes of section 6661, the term
"tax shelter" includes any plan or arrangement aimed principally
at avoiding or evading Federal income tax. Sec.
6661(b)(2)(C)(ii)(III). Petitioners' purported transfer of
farming assets to Imperial constituted a tax shelter within the
meaning of this section.
Petitioners have failed to meet their burden of proof on
this issue. The understatements are substantial, and the record
does not establish that any of the understatements are reduced
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Last modified: May 25, 2011