118 STAT. 1579 PUBLIC LAW 108–357—OCT. 22, 2004 ‘‘The excess under the preceding sentence shall be deter mined without regard to items to which section 6662A applies.’’. (c) REASONABLE CAUSE EXCEPTION.— (1) IN GENERAL.—Section 6664 is amended by adding at the end the following new subsection: ‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORTABLE TRANS ACTION UNDERSTATEMENTS.— ‘‘(1) IN GENERAL.—No penalty shall be imposed under sec tion 6662A with respect to any portion of a reportable trans action understatement if it is shown that there was a reason able cause for such portion and that the taxpayer acted in good faith with respect to such portion. ‘‘(2) SPECIAL RULES.—Paragraph (1) shall not apply to any reportable transaction understatement unless— ‘‘(A) the relevant facts affecting the tax treatment of the item are adequately disclosed in accordance with the regulations prescribed under section 6011, ‘‘(B) there is or was substantial authority for such treatment, and ‘‘(C) the taxpayer reasonably believed that such treat ment was more likely than not the proper treatment. A taxpayer failing to adequately disclose in accordance with section 6011 shall be treated as meeting the requirements of subparagraph (A) if the penalty for such failure was rescinded under section 6707A(d). ‘‘(3) RULES RELATING TO REASONABLE BELIEF.—For purposes of paragraph (2)(C)— ‘‘(A) IN GENERAL.—A taxpayer shall be treated as having a reasonable belief with respect to the tax treatment of an item only if such belief— ‘‘(i) is based on the facts and law that exist at the time the return of tax which includes such tax treatment is filed, and ‘‘(ii) relates solely to the taxpayer’s chances of suc cess on the merits of such treatment and does not take into account the possibility that a return will not be audited, such treatment will not be raised on audit, or such treatment will be resolved through settlement if it is raised. ‘‘(B) CERTAIN OPINIONS MAY NOT BE RELIED UPON.— ‘‘(i) IN GENERAL.—An opinion of a tax advisor may not be relied upon to establish the reasonable belief of a taxpayer if— ‘‘(I) the tax advisor is described in clause (ii), or ‘‘(II) the opinion is described in clause (iii). ‘‘(ii) DISQUALIFIED TAX ADVISORS.—A tax advisor is described in this clause if the tax advisor— ‘‘(I) is a material advisor (within the meaning of section 6111(b)(1)) and participates in the organization, management, promotion, or sale of the transaction or is related (within the meaning of section 267(b) or 707(b)(1)) to any person who so participates, ‘‘(II) is compensated directly or indirectly by a material advisor with respect to the transaction,
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