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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. Sec.
6661(b)(2)(C)(i)(II). Second, disclosure, whether or not
adequate, will not reduce the amount of the understatement. Sec.
6661(b)(2)(C)(i)(I).6
The understatement of tax of $5,124 on petitioners’ return
is greater than $5,000 and is greater than 10 percent of the tax
required to be shown on the return, or $1,614. Consequently, it
is a substantial understatement of tax. Sec. 6661(b)(1)(A).
Petitioners first argue that there was substantial authority
for claiming the loss. Substantial authority exists when “the
weight of authorities supporting the treatment is substantial in
relation to the weight of the authorities supporting contrary
positions.” Sec. 1.6661-3(b)(1), Income Tax Regs. Petitioners
argue that at the time they claimed the loss no authority existed
indicating that deducting the loss was improper. Lack of
authority, however, necessarily cannot provide the substantial
authority required under the statute and regulations. See, e.g.,
Hunt v. Commissioner, T.C. Memo. 2001-15; Robnett v.
Commissioner, T.C. Memo. 2001-17. Petitioners also point to the
6As a result of our findings, discussed below, we need not
decide whether the tax shelter provisions are applicable in this
case.
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