Lucian T. Baldwin, III - Page 56




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               An understatement for purposes of section 6661 does not                
          include any item for which the taxpayer’s return position was               
          supported by substantial authority.  Sec. 1.6661-3(a)(1), Income            
          Tax Regs.  Substantial authority exists when the weight of                  
          authorities supporting the treatment is substantial in comparison           
          to the weight of authorities supporting contrary positions.  Sec.           
          1.6661-3(b)(1), Income Tax Regs.  A position that is arguable but           
          fairly unlikely to prevail in court will not be considered as               
          supported by substantial authority.  Id.  A case having some                
          facts in common with the tax treatment at issue does not                    
          constitute authority if the case is materially distinguishable on           
          its facts.  Sec. 1.6661-3(b)(3), Income Tax Regs.                           
               Petitioner does not rely on any cases which, individually or           
          collectively, qualify as substantial authority for his reporting            
          position either with respect to the LFI adjustments or the BAC              
          adjustments.  Petitioner cites Campbell v. Commissioner, 868 F.2d           
          833 (6th Cir. 1989), revg. T.C. Memo. 1986-569, for the                     
          proposition that the “entire economic relationship” of related              
          companies must be analyzed when making a determination regarding            
          profit motivation.  Petitioner also relies on several cases                 
          holding that the taxpayer had a bona fide profit motive in what             
          he contends are similar situations.  See, e.g., Cornfeld v.                 
          Commissioner, 797 F.2d 1049 (D.C. Cir. 1986); Horner v.                     
          Commissioner, 35 T.C. 231 (1960); Kuhn v. Commissioner, T.C.                







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