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petitioner’s tax treatment of the disputed transaction. Sec.
1.6662-4(d)(3)(ii), Income Tax Regs.
On the record before us, we find that petitioner has failed
to carry its burden of showing that there is or was substantial
authority within the meaning of section 6662(d)(2)(B)(i) and the
regulations thereunder for the position that it took in peti-
tioner’s 1993 return with respect to the disputed transaction.18
We conclude that the amount of the understatement attributable to
the disputed transaction is not reduced under section
6662(d)(2)(B)(i).
With respect to respondent’s argument under respondent’s
alternative position that there was no adequate disclosure of the
relevant facts affecting the tax treatment of the disputed
transaction in petitioner’s 1993 return or in the October 11,
1996 disclosure letter, respondent contends that: (1) Petitioner
18Petitioner also argues that, even if the purported issu-
ance and the purported immediate redemption of ITC’s preferred
stock lacked economic substance or are otherwise disregarded for
tax purposes, there nonetheless is substantial authority for
treating the remaining steps of the disputed transaction as a
dividend from ITC to petitioner. On the record before us, we
reject that argument. The disputed transaction did not involve
the declaration of a dividend by ITC to petitioner. If we were
to disregard the purported issuance and the purported immediate
redemption of ITC’s preferred stock, the steps of the disputed
transaction that would remain are: (1) A purported loan by Royal
Bank to ITC, (2) a purported repayment by ITC to petitioner of an
outstanding loan from petitioner to ITC, and (3) a purported loan
by petitioner to ITC in order to pay off the purported loan by
Royal Bank to ITC. Petitioner cites no authority or facts that
would support the recharacterization of those remaining steps as
a dividend.
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