Page:United States Statutes at Large Volume 96 Part 1.djvu/656

 96 STAT. 614 26 USC 6661.

PUBLIC LAW 97-248—SEPT. 3, 1982 "SEC. 6661. SUBSTANTIAL UNDERSTATEMENT OF LIABILITY. "(a) ADDITION TO T A X. — I f the r e is a s u b s t a n t i a l under statement of

income tax for any taxable year, the r e shall be added to the tax a n a m o u n t equal to 10 percent of the a m o u n t of any under payment a t t r i b u t a b l e to such under statement. "(b) DEFINITION AND SPECIAL RULE. — "(1) SUBSTANTIAL UNDERSTATEMENT.—

"(A) IN GENERAL.—For purposes of this section, the r e is a substantial under statement of income tax for any taxable year if the a m o u n t of the under statement for the taxable year exceeds the g r e a t e r of— "(i) 10 percent of the tax required to be shown on the r e t u r n for the taxable year, or "(ii) $5,000. "(B) SPECIAL RULE FOR CORPORATIONS.—In the case of a

corporation other than a n electing small business corporation (as defined in section 1371(b)) or a personal holding company (as defined in section 542), paragraph (1) shall be applied by substituting '$10,000' for '$5,000'. "(2) U N D E R STATEMENT. —

"(A) IN GENERAL.—For purposes of paragraph (1), the term ' under statement ' means the excess of— "(i) the a m o u n t of the tax required to be shown on the r e t u r n for the taxable year, over "(ii) the a m o u n t of the tax imposed which is shown on the r e t u r n. "(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OF

TAXPAYER OR DISCLOSED ITEM.—The a m o u n t of the understatement under subparagraph (A) shall be reduced by that portion of the under statement which is a t t r i b u t a b l e to— "(i) the tax t r e a t m e n t of any item by the tax p a y e r if the r e is or was substantial authority for such treatment, or "(ii) any item with respect to which the relevant facts affecting the item's tax t r e a t m e n t a r e adequately disclosed in the r e t u r n or in a statement attached to the return. "(C) SPECIAL RULES IN CASES INVOLVING TAX SHELTERS.—

"(i) IN GENERAL.—In the case of any item a t t r i b u t a b l e to a tax shelter— "(I) subparagraph (B)(ii) shall not apply, and "(II) subparagraph (B)(i) shall not apply unless (in addition to meeting the requirements of such subparagraph) the tax p a y e r reasonably believed that the tax t r e a t m e n t of such item by the taxpayer was more likely than not the proper treatment. "(ii) TAX SHELTER.—For purposes of clause (i), the term 'tax shelter' means— "(I) a partnership or other entity, "(II) any investment plan or a r r a n g e m e n t, or "(III) any other plan or a r r a n g e m e n t, if the principal purpose of such partnership, entity, plan, or a r r a n g e m e n t is the avoidance or evasion of Federal income tax.

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