William R. and Betty O. Bass - Page 10
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the greater of 10 percent of the tax required to be shown on the
return, or $5,000. Sec. 6661(b)(1)(A). Generally, the amount of
an understatement is reduced by the portion of the understatement
that the taxpayer shows is attributable to either (1) the tax
treatment of any item for which there was substantial authority,
or (2) the tax treatment of any items with respect to which the
relevant facts were adequately disclosed on the return. Sec.
6661(b)(2)(B). If an understatement is attributable to a tax
shelter item, however, different standards apply. First, in
addition to showing the existence of substantial authority, a
taxpayer must show that he reasonably believed that the tax
treatment claimed was more likely than not proper. Sec.
6661(b)(2)(C)(i)(II). Second, disclosure, whether or not
otherwise adequate, will not reduce the amount of the
understatement. Sec. 6661(b)(2)(C)(i)(I).
Substantial authority exists when “the weight of the
authorities supporting the treatment is substantial in relation
to the weight of authorities supporting contrary positions.”
Sec. 1.6661-3(b)(1), Income Tax Regs. Petitioner has failed to
show that substantial authority existed for the tax treatment of
the Cal-Neva loss on his 1982 return.
Petitioner has not satisfied any of the conditions for
avoiding application of the section 6661 addition to tax. His
inclusion of the loss on Schedule C without identification of the
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Last modified: March 27, 2008