- 10 - 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 thePage: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 NextLast modified: March 27, 2008