- 10 - 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 reducedPage: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011