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An understatement is reduced by the portion of the
understatement that is attributable to the tax treatment of an
item for which there is substantial authority or with respect to
which there is adequate disclosure and a reasonable basis. See
sec. 6662(d)(2)(B); sec. 1.6662-4(a), Income Tax Regs. However,
no substantial authority exists to support petitioners’ position
as to either the inapplicability of section 165(d) to tournament
poker or Mr. Tschetschot’s status as a professional gambler.
Substantial “authority [exists] for the tax treatment of an item
only if the weight of the authorities supporting the treatment is
substantial in relation to the weight of authorities supporting
contrary treatment.” Sec. 1.6662-4(d)(3)(i), Income Tax Regs.
Types of authority on which a taxpayer may rely include the
Internal Revenue Code and regulations, revenue rulings and
procedures, technical advice memoranda, and private letter
rulings. See sec. 1.6662-4(d)(3)(iii), Income Tax Regs.
Additionally, whether or not there was adequate disclosure, there
is no reasonable basis to support petitioners’ position on
tournament poker given the clear mandate of section 165(d) and
the existing caselaw interpreting it. Accordingly, we are not
permitted to make a reduction in the understatement attributable
to respondent’s determination on that issue.
In view of respondent’s concession that Mrs. Tschetschot’s
expenses are deductible, it is unclear whether there exists a
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Last modified: May 25, 2011