In short
A tax position has substantial authority when the weight of authorities supporting it is substantial compared with those against it, often described as roughly a 40% chance of being upheld. It avoids the substantial understatement penalty without disclosure.
Key takeaways
- A weaker position with a reasonable basis (about 20%) avoids the penalty only if disclosed; tax shelters need more likely than not.
- Authorities include the Code, regulations, court cases, revenue rulings and private letter rulings, but not treatises or articles.
- Preparers use the same standards to avoid preparer penalties.
Where it's tested
TCP: Tax Research & Documentation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A tax practitioner finds a Private Letter Ruling issued to another taxpayer that directly supports the client's intended position. How should the practitioner treat it?