-280-
tax required to be shown on the return for the taxable year, over
the amount of the tax imposed which is shown on the return. Sec.
6662(d)(2)(A).195 The amount of the understatement is reduced by
that portion of the understatement that is attributable to the
tax treatment of any item by the taxpayer for which there is or
was substantial authority, if 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 a reasonable
basis for the tax treatment of such item by the taxpayer. Sec.
6662(d)(2)(B). Petitioner relies on the substantial authority
standard as a defense to the application of the understatement
penalty.196
The substantial authority standard is an objective standard
involving an analysis of the law and application of the law to
195 In a partnership-level proceeding, we do not calculate
the understatement or determine whether it is substantial for
purposes of sec. 6662. Because the penalties apply at the
partner level, the understatement must be calculated on the basis
of the partner’s return and is the subject of a computational
adjustment. A partner may file a claim for refund on the ground
that the Secretary erroneously imposed any penalty which relates
to an adjustment to a partnership item. Sec. 6230(c)(1)(C), (4);
see sec. 301.6221-1(c) and (d), Proced. & Admin. Regs.
(applicable to partnership taxable years beginning on or after
Oct. 4, 2001).
196 Even if sec. 7491(c) is applicable, respondent is not
required to introduce evidence as to substantial authority.
Petitioner bears both the burden of production and the burden of
proof as to these issues. See Higbee v. Commissioner, 116 T.C.
438, 446-447 (2001); H. Conf. Rept. 105-599, at 241 (1998), 1998-
3 C.B. 747, 995.
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