Opinion ID: 577995
Heading Depth: 1
Heading Rank: 3

Heading: Addition to Tax

Text: 10 With respect to returns due on or before December 31, 1989, the IRS may impose an addition to tax equal to 25% of the amount of any underpayment attributable to a substantial understatement of income tax for a given year. 26 U.S.C. § 6661(a) (since repealed). An understatement is deemed substantial if it exceeds $5,000 or 10% of the income tax due for the year in question. 26 U.S.C. § 6661(b)(1)(A)(i), (ii) (same). However, the IRS may, in its discretion, waive the penalty on a showing by the taxpayer that there was reasonable cause for the understatement ... and that the taxpayer acted in good faith. 26 U.S.C. § 6661(c) (same). 4 11 Here, Taxpayer argues that the IRS could not impose any addition to tax because it was Taxpayer who first disclosed the Western Reserve matter to the government, and that the IRS should not have imposed the addition to tax because Taxpayer reasonably relied on professional advice. 5 Neither argument has any merit. 12 Although we find no error in the Tax Court's holding that the facts do not support Taxpayer's contention that he had brought the whole matter to the attention of the IRS, we note also that the so-called disclosure rule of 26 U.S.C. § 6661(b)(2)(B)(ii) does not apply to a tax shelter such as Western Reserve. See 26 U.S.C. § 6661(b)(2)(C); Ferrell v. C.I.R., 90 T.C. 1154, 1198 (1988). The facts recited above also show that Taxpayer's situation is clearly not that of an unsophisticated investor entitled to a waiver of the penalty. Cf. Vorsheck v. C.I.R., 933 F.2d 757, 759 (9th Cir.), cert. denied, 112 S.Ct. 591 (1991). Accordingly, we find no error with the Tax Court's ruling on this issue, either. 13