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tax treatment of a particular item may be made either in a
statement attached to the return or on the return itself. Sec.
1.6661-4(b) and (c), Income Tax Regs.
If an understatement is attributable to a tax shelter item,
then different standards apply. First, in addition to showing
the existence of substantial authority, a taxpayer must show that
he or she reasonably believed that the tax treatment claimed was
more likely than not the proper treatment. 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).
Petitioner appears to concede that there was a substantial
understatement of tax within the meaning of section 6661(a).28
Petitioner does not contend, however, that there was substantial
authority supporting the deduction of the partnership loss that
he claimed on his return, nor does petitioner contend that there
was adequate disclosure of the facts related to that loss.
Rather, petitioner contends that he should be absolved of
liability for the addition to tax by virtue of section 6661(c).
28 We note that the understatement of tax on which
respondent determined the addition to tax is $5,435. The amount
required to be shown as tax on petitioner’s return is $51,478.
The understatement is therefore “substantial” because it exceeds
the greater of 10 percent of the amount required to be shown on
the return, or $5,000. Sec. 6661(a).
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