(2) Understatement (A) In general For purposes of paragraph (1), the term “understatement” means the excess of— (i) the amount of the tax required to be shown on the return for the taxable year, over (ii) the amount of the tax imposed which is shown on the return, reduced by any rebate (within the meaning of section 6211(b)(2) ). The excess under the preceding sentence shall be determined without regard to items to which section 6662A applies. (B) Reduction for understatement due to position of taxpayer or disclosed item The amount of the understatement under subparagraph (A) shall be reduced by that portion of the understatement which is attributable to— (i) the tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment, or (ii) any item if— (I) the relevant facts affecting the item’s tax treatment are adequately disclosed in the return or in a statement attached to the return, and (II) there is a reasonable basis for the tax treatment of such item by the taxpayer. For purposes of clause (ii)(II), in no event shall a corporation be treated as having a reasonable basis for its tax treatment of an item attributable to a multiple-party financing transaction if such treatment does not clearly reflect the income of the corporation. (C) Reduction not to apply to tax shelters (i) In general Subparagraph (B) shall not apply to any item attributable to a tax shelter. (ii) Tax shelter For purposes of clause (i), the term “tax shelter” means— (I) a partnership or other entity, (II) any investment plan or arrangement, or (III) any other plan or arrangement, if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal income tax.
26 USC § 6662(d)(2)
None identified, default scope is assumed to be the parent (part II) of this section.