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less than the amount required to be shown on the return. An
understatement is “substantial” if it exceeds the greater of 10
percent of the tax required to be shown on the return for the
taxable year, or $5,000. Sec. 6662(d)(1) and (2).
An understatement may be reduced by the tax attributable to
items (1) for which there is or was substantial authority, or (2)
for which there was adequate disclosure of the facts relating to
the tax treatment and a reasonable basis for the tax treatment.
Sec. 6662(d)(2)(B); sec. 1.6662-4(b)(4), Income Tax Regs.
Additionally, the accuracy-related penalty does not apply to any
part of an underpayment if the taxpayer shows that there was
reasonable cause for that part of the underpayment and that he
acted in good faith in view of the facts and circumstances. Sec.
6664(c). The determination of whether a taxpayer acted with
reasonable cause and good faith is made on a case-by-case basis,
taking into account all the pertinent facts and circumstances.
Sec. 1.6664-4(b)(1), Income Tax Regs. The taxpayer has the
burden of proving that he acted with reasonable cause and in good
faith. Higbee v. Commissioner, 116 T.C. 438, 446-449 (2001).
The Court finds that petitioners lacked substantial
authority for their positions with respect to the distributions
in question. The only circumstance petitioners cited was their
reliance on instructions to Form 1040. The instructions, read in
their entirety, do not support the interpretations of petitioners
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