- 14 - for which there was substantial authority, or (2) the tax treatment of any item with respect to which the relevant facts were adequately disclosed on the return. See sec. 6661(b)(2)(B). If an understatement is attributable to a tax shelter item, however, different standards apply. First, in addition to showing the existence of substantial authority, a taxpayer must show that he reasonably believed that the tax treatment claimed was more likely than not proper. See sec. 6661(b)(2)(C)(i)(II). Second, disclosure, whether or not adequate, will not reduce the amount of the understatement. See sec. 6661(b)(2)(C)(i)(I).4 Petitioners do not argue that they had substantial authority for claiming the loss, nor do they argue that there was adequate disclosure on the return. We find that the record does not establish the presence of either. The only argument petitioners make is that they acted with reasonable cause and in good faith in claiming the loss. Section 6661(c) provides the Secretary with the discretion to waive the section 6661(a) addition to tax if the taxpayer shows he acted with reasonable cause and in good faith. We review the Secretary’s failure to waive the addition to tax for 4Respondent argues in his brief that “petitioners’ claimed loss for 1982 was clearly a tax shelter item,” despite the fact that the notice of deficiency stated that the underpayment “is attributable to non-tax shelter items.” As a result of our findings we need not decide whether the tax shelter provisions are applicable in this case.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011