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Section 6662(d)(2)(B) provides that the amount of the
understatement shall be reduced by that portion of the
understatement that is attributable to the tax treatment of any
item by the taxpayer if there is or was substantial authority for
the treatment, or any item with respect to which the relevant
facts affecting the item's tax treatment are adequately disclosed
in the return or in a statement attached to the return, and there
is reasonable basis for such treatment.
The tax that was required to be shown on petitioners' 1997
return, based on respondent's adjustments, was $20,453.
Petitioners' return showed a tax of zero. Despite respondent's
lack of explanation, the Court surmises that respondent
determined $4,397 of this difference to have been adequately
disclosed, and, therefore, $16,056 was considered the
understatement of tax for purposes of section 6662(d)(2)(A). In
any event, the $16,056 clearly exceeds the greater of $5,000 or
10 percent of the tax required to be shown on the return (i.e.,
$2,045.30). It follows that petitioners' understatement of tax
was substantial for purposes of section 6662(d)(1)(A).
The determination of whether a taxpayer acted with
reasonable cause and in good faith depends upon the facts and
circumstances of each particular case. Sec. 1.6664-4(b)(1),
Income Tax Regs. Relevant factors include the taxpayer's efforts
to assess his or her proper tax liability, the knowledge and
experience of the taxpayer, and reliance on the advice of a
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