                          T.C. Memo. 2001-278



                        UNITED STATES TAX COURT



                 DOMINGO A. LOPEZ, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 17068-99.             Filed October 10, 2001.


     Denis M. McDevitt, for petitioners.

     Rodney J. Bartlett, for respondent.



                          MEMORANDUM OPINION


     COUVILLION, Special Trial Judge: Respondent determined that

petitioner was liable for the following additions to tax for the

years 1982 and 1983:1



     1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the years at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                - 2 -



                                 Additions to Tax
     Year        Sec. 6653(a)(1)      Sec. 6653(a)(2)       Sec. 6661

     1982              $517                *                $2,585
     1983                20                **                 –--

     *      Fifty percent of the interest due on $10,340.
     **     Fifty percent of the interest due on $393.


     The issues for decision are: (1) Whether, for 1982 and 1983,

petitioner is liable for the additions to tax under section

6653(a)(1) and (2) for negligence, and (2) whether, for 1982,

petitioner is liable for the addition to tax under section 6661

for a substantial understatement of tax.    The issues in this case

relate to the participation of petitioner as a limited partner in

a partnership known as Blythe Jojoba I Research, Ltd. (Blythe I

or the partnership).

     Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference.    At the time the petition was filed, petitioner's

legal residence was La Jolla, California.

     Petitioner is a medical doctor specializing in dermatology.

Petitioner has been engaged in the private practice of

dermatology in the San Diego, California, area since 1980.      For

approximately 20 years prior to 1980, petitioner worked as a

physician in the U.S. Navy.    Petitioner was born and raised in

the U.S. Territory of Puerto Rico, where petitioner's father was

an accountant and a coffee bean and citron fruit farmer.      While
                                - 3 -


growing up, petitioner occasionally assisted his father on the

coffee bean and citron plantation.

     Shortly after his entry into medical practice, petitioner

began to attend various business and financial seminars in order

to become more educated about efficiently sustaining a private

medical practice.   During one of these seminars in 1982,

petitioner met Thomas Moore (Mr. Moore), a financial adviser with

Coordinated Financial Services (CFS) of Salt Lake City, Utah.

Mr. Moore was a promoter for Blythe I.

     Petitioner engaged Mr. Moore to conduct a comprehensive

analysis of petitioner's personal and business financial

situation.   One of Mr. Moore's recommendations was to "invest in

a tax-sheltered program designed to generate $55,000 of

deductions in 1982", and thus he introduced petitioner to the

Blythe I offering, which was being promoted as an agricultural

research and development partnership.    According to petitioner,

Mr. Moore had no apparent previous experience with agricultural

or research and development partnerships.

     Mr. Moore provided petitioner with a fairly voluminous

private placement memorandum2 (the offering), which described the

proposed investment in and the activities to be conducted through

Blythe I.    Petitioner reviewed the document and then passed along



     2
          The private placement memorandum consisted of some 47
pages, plus eight exhibits, and a table of contents.
                               - 4 -


the offering to his certified public accountant and tax attorney,

Denis McDevitt (Mr. McDevitt), whom petitioner had recently hired

to prepare his income tax returns.     After reviewing the offering,

Mr. McDevitt advised petitioner that he had no problem with

petitioner's investment in Blythe I.    Petitioner did not consult

any independent expert in the area of agriculture or jojoba

plants as to whether jojoba oil or any other jojoba derivative

had a potentially lucrative commercial market.    Petitioner,

nevertheless, invested in Blythe I.

      On his joint 1982 Federal income tax return, petitioner

reported wages of $84,702 from his medical practice and other

employment, as well as $14,336 from his wife's employment.

Petitioner also reported interest income of $579, taxable

dividend income of $118, a State income tax refund of $1,491, a

capital loss of $2,000, and taxable pension income of $25,633.

Additionally, petitioner reported a loss of $20,925 from Blythe

I.   Thus, petitioner reported total income of $103,934 and a

total tax liability of $24,211.

      On his joint 1983 Federal income tax return, petitioner

reported wages of $37,239 from his medical practice and other

employment, as well as $15,042 from his wife's employment.

Petitioner also reported interest income of $610, a State income

tax refund of $274, and taxable pension income of $26,851.

Additionally, petitioner reported a loss of $981 from Blythe I.
                               - 5 -


Thus, petitioner reported total income of $79,035 and a total tax

liability of $11,524.

     Blythe I was audited by the Internal Revenue Service, and a

Notice of Final Partnership Administrative Adjustment was issued

to the partnership.   The partnership initiated a TEFRA proceeding

in this Court, and a decision was entered in Utah Jojoba I

Research v. Commissioner, T.C. Memo. 1998-6, which involved a

similar jojoba investment program.3    In the decided case, this

Court held that the partnerships4 did not directly or indirectly

engage in research or experimentation and that the partnerships

lacked a realistic prospect of entering into a trade or business.

In upholding respondent's disallowance of research and

experimental expenditures, the Court found that the agreements

between the partnerships and the proposed research and

development contractor, U.S. Agri Research & Development Corp.

(U.S. Agri), had been designed and entered into solely to provide

a mechanism to disguise the capital contributions of limited

partners as currently deductible expenditures.    The Court stated

that the activities of the partnerships were "another example of

efforts by promoters and investors in the early 1980's to reduce



     3
          The tax matters partner of Blythe I signed a
stipulation to be bound by the outcome of Utah Jojoba I Research
v. Commissioner, T.C. Memo. 1998-6.
     4
          Eighteen docketed cases were bound by stipulation by
the outcome of Utah Jojoba I Research v. Commissioner, supra.
                                - 6 -


the cost of commencing and engaging in the farming of jojoba by

claiming, inaccurately, that capital expenditures in jojoba

plantations might be treated as research or experimental

expenditures for purposes of claiming deductions under section

174."   Id.

     As a result of Blythe I's TEFRA proceeding, petitioner and

his wife were assessed tax deficiencies of $10,340 for 1982 and

$394 for 1983, plus interest.   Subsequently, respondent issued a

notice of deficiency to petitioner and his wife for 1982 and 1983

for affected items, determining that they are liable for the

additions to tax for negligence under section 6653(a)(1) and (2)

for 1982 and 1983 and a substantial understatement of tax under

section 6661 for 1982.   These additions to tax are the subject of

the instant case.   Petitioner's wife did not petition this Court

and did not testify at trial.

     The first issue is the additions to tax for negligence under

section 6653(a)(1) and (2) for both years at issue.   Section

6653(a)(1) imposes an addition to tax in an amount equal to 5

percent of an underpayment of tax if any part of the underpayment

is due to negligence or intentional disregard of rules or

regulations.   Section 6653(a)(2) imposes another addition to tax

in an amount equal to 50 percent of the interest due on the

portion of the underpayment attributable to negligence or

intentional disregard of rules or regulations.   Respondent’s
                               - 7 -


determinations in a notice of deficiency are presumed correct,

and petitioner must establish otherwise.    Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933); cf. sec. 7491(c).5

Respondent determined that petitioner's underpayments were due to

negligence.   Petitioner, therefore, has the burden of proving he

was not negligent in deducting his share of the partnership’s

losses.   Estate of Mason v. Commissioner, 64 T.C. 651, 663

(1975), affd. 566 F.2d 2 (6th Cir. 1977); Bixby v. Commissioner,

58 T.C. 757, 791 (1972); Anderson v. Commissioner, T.C. Memo.

1993-607, affd. 62 F.3d 1266 (10th Cir. 1995).

     Negligence is defined as the failure to exercise the due

care that a reasonable and ordinarily prudent person would

exercise under like circumstances.     Anderson v. Commissioner,

62 F.3d 1266, 1271 (10th Cir. 1995), affg. T.C. Memo. 1993-607;

Neely v. Commissioner, 85 T.C. 934, 947 (1985); Glassley v.

Commissioner, T.C. Memo. 1996-206.     The focus of inquiry is

on the reasonableness of the taxpayer’s actions in light of his

experience and the nature of the investment.     Henry Schwartz



     5
           The Internal Revenue Service Restructuring & Reform Act
of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added
sec. 7491(c), which places the burden of production on the
Secretary with respect to a taxpayer’s liability for penalties
and additions to tax in court proceedings arising in connection
with examinations commencing after July 22, 1998. Petitioner
does not contend, nor is there evidence, that his examination
commenced after July 22, 1998, or that sec. 7491 is applicable in
this case.
                                 - 8 -


Corp. v. Commissioner, 60 T.C. 728, 740 (1973); Greene v.

Commissioner, T.C. Memo. 1998-101, affd. without published

opinion 187 F.3d 629 (4th Cir. 1999); Glassley v. Commissioner,

supra; Turner v. Commissioner, T.C. Memo. 1995-363.      Whether a

taxpayer is negligent in claiming a tax deduction "depends upon

both the legitimacy of the underlying investment, and due care in

the claiming of the deduction."     Sacks v. Commissioner, 82 F.3d

918, 920 (9th Cir. 1996), affg. T.C. Memo. 1994-217; see Greene

v. Commissioner, supra.

      A taxpayer may avoid liability for negligence penalties

under some circumstances if the taxpayer reasonably relied on

competent professional advice.    See Freytag v. Commissioner, 89

T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd.

on other issue 501 U.S. 868 (1991).      Such reliance, however, is

"not an absolute defense to negligence, but rather a factor to be

considered."   Id.   Moreover, the taxpayer must show that the

professional adviser had the expertise and knowledge of the

pertinent facts to provide informed advice on the subject matter.

Id.

      The facts pertinent to the instant case, relating to the

structure, formation, and operation of Blythe I are as discussed

in Utah Jojoba I Research v. Commissioner, supra, with the

exception of a few specific dates and dollar amounts.     Blythe I

was organized in December 1982 as a limited partnership for the
                               - 9 -


described purpose of conducting research and development (R & D)

involving the jojoba plant.   The offering, dated November 22,

1982, provided for a maximum capitalization of $2,968,000

consisting of 350 limited partnership units at $8,480 per unit.

Each unit required a cash downpayment of $2,500 and a

noninterest-bearing promissory note in the principal amount of

$5,980 payable in 10 annual installments with an acceleration

provision in the event of default.     The offering was limited to

investors with a net worth (exclusive of home, furnishings, and

automobiles) of $150,000, or investors whose net worth was

$50,000 (exclusive of home, furnishings, and automobiles) and who

anticipated that, for the taxable year of the investment, they

would have gross income equal to $65,000, or taxable income, a

portion of which, but for tax-advantaged investments, would be

subject to a Federal income tax rate of 50 percent.

     Petitioner invested in four limited partnership units, which

required an initial downpayment of $10,000 and execution of a

promissory note for $23,920, with payments of $2,600 each year

from 1983 through 1985, $2,100 per year from 1986 through 1991,

and a final payment of $3,520 in 1992 on the promissory note.

The record reflects that the $10,000 due in 1982 and the $2,600

due in 1983, totaling $12,600, were paid.    In 1984, petitioner

defaulted on the remainder due on the promissory note.
                              - 10 -


     The offering identified William Kellen (Mr. Kellen) as the

general partner and U.S. Agri as the contractor for the R & D

program under an R & D agreement.   Additionally, a license

agreement between Blythe I and U.S. Agri granted U.S. Agri the

exclusive right to utilize technology developed for Blythe I for

40 years in exchange for a royalty of 85 percent of all products

produced.   The offering included copies of both the R & D

agreement and the license agreement.   The R & D agreement was

executed concurrently with the license agreement.

     According to its terms, the R & D agreement expired upon the

partnership's execution of the license agreement.   Since the two

were executed concurrently, amounts paid to U.S. Agri by the

partnership were not paid pursuant to a valid R & D agreement but

were passive investments in a farming venture under which the

investors' return, if any, was to be in the form of a royalty

pursuant to the licensing agreement.   Thus, as this Court held in

Utah Jojoba I Research v. Commissioner, T.C. Memo. 1998-6, the

partnership was never engaged in research or experimentation,

either directly or indirectly.   Moreover, this Court found in

Utah Jojoba I Research v. Commissioner, supra, that U.S. Agri's

attempts to farm jojoba commercially did not constitute research

and development, thereby concluding that the R & D agreement was

designed and entered into solely to decrease the cost of

participation in the jojoba farming venture for the limited
                              - 11 -


partners through large upfront deductions for expenditures that

were actually capital contributions.   The Court concluded further

that the partnership was not involved in a trade or business and

had no realistic prospect of entering into a trade or business

with respect to any technology that was to be developed by U.S.

Agri.

     Petitioner here contends that his investment in Blythe I was

motivated solely by the potential to earn a profit.   Petitioner

contends further that his reliance on the advice of his certified

public accountant and tax attorney, Mr. McDevitt, should absolve

him of liability for the negligence penalty in this case.

Petitioner also argues that, taking into account his experience

and the nature of the investment in Blythe I, he exercised the

due care that a reasonable and ordinarily prudent person would

have exercised under like circumstances.   For the reasons set

forth below, the Court does not agree with petitioner's

contentions.

     First, the principal flaw in the structure of Blythe I was

evident from the face of the very documents included in the

offering.   A reading of the R & D agreement and licensing

agreement, both of which were included as part of the offering,

plainly shows that the licensing agreement canceled or rendered

ineffective the R & D agreement because of the concurrent

execution of the two documents.   Thus, the partnership was never
                               - 12 -


engaged, either directly or indirectly, in the conduct of any

research or experimentation.    Rather, the partnership was merely

a passive investor seeking royalty returns pursuant to the

licensing agreement.    Any experienced attorney capable of reading

and understanding the subject documents should have understood

the legal ramifications of the licensing agreement canceling out

the R & D agreement.    However, petitioner's tax attorney, Mr.

McDevitt, obviously failed to review diligently the offering

prior to advising petitioner to invest in Blythe I.   It is also

clear from the record that petitioner failed to scrutinize

carefully the offering himself.

     Secondly, in making his investment in Blythe I, petitioner

relied on the advice of his certified public accountant and tax

attorney, Mr. McDevitt, and Mr. Moore, who was a promoter for the

partnership.   Mr. McDevitt made only a cursory review of the

offering and made no objection to petitioner's investment in

Blythe I.   When asked at trial whether he endorsed the

investment, Mr. McDevitt stated that "endorse might be too strong

a word."    Mr. McDevitt did not give petitioner a written opinion

about the investment, nor did he conduct any independent research

or consult any type of agricultural or jojoba plant expert about

the investment.   Instead, he relied solely on the representations

made in the offering.
                              - 13 -


     Moreover, at trial Mr. McDevitt claimed that, at the time he

advised petitioner about Blythe I, he had prior experience with

agricultural partnerships and research and development

partnerships; yet, no evidence about the amount, scope, and

nature of such experience was produced.   Mr. McDevitt failed to

conduct any independent investigation to determine whether the

specific research and development proposed to be conducted by or

on behalf of the partnership would have qualified for deductions

under section 174.   It is also notable that Mr. McDevitt had no

background or experience in the area of Jojoba plants.

     There is no evidence in the record to suggest that

petitioner or his wife ever questioned Mr. McDevitt about the

facts and/or legal analysis upon which he based his

recommendations.   Further, the record is devoid of any evidence

that petitioner asked Mr. McDevitt to explain the Blythe I

investment to him, particularly those portions of the offering

that he had opted not to read or apparently was unable to

understand.

     The facts in this case are similar to those in Glassley v.

Commissioner, T.C. Memo. 1996-206, in which this Court found that

the taxpayers:


     acted on their fascination with the idea of
     participating in a jojoba farming venture and their
     satisfaction with tax benefits of expensing their
     investments, which were clear to them from the
                                - 14 -


     promoter’s presentation. They passed the offering
     circular by their accountants for a "glance" * * *.


Similarly, petitioner here acted on his enthusiasm for the

potential uses of jojoba and acted with knowledge of the tax

benefits of making the investment.       The evidence in this record

suggests that the nature of the advice given by Mr. McDevitt was

highly generalized and based primarily on a mere cursory review

of the offering rather than on independent knowledge, research,

or analysis.    Petitioner failed to show that Mr. McDevitt had the

expertise and knowledge of the pertinent facts to provide

informed advice on the investment in Blythe I.      See Freytag v.

Commissioner, 89 T.C. at 888.    Accordingly, petitioner failed to

establish that his reliance on the advice of Mr. McDevitt was

reasonable or in good faith.    See Glassley v. Commissioner,

supra.

     The Court next examines petitioner's reliance on the advice

of Mr. Moore.    Petitioner admitted that he relied heavily on the

advice of Mr. Moore and the information contained in the offering

in making his investment in Blythe I.      Yet, Mr. Moore also had no

background or expertise in the areas of agriculture or jojoba

plants.   In fact, it appears that nearly all other potential

investments recommended to petitioner by Mr. Moore in his

financial analysis were real estate investments, and that Blythe

I was the only investment of an agricultural nature advocated by
                                  - 15 -


him.       More importantly, because Mr. Moore had a personal profit

motive in selling this investment to clients, he had a conflict

of interest in advising petitioner to purchase the limited

partnership interests.6      The advice petitioner received from Mr.

Moore fails as a defense to negligence due to his lack of

competence to give such advice and the clear presence of a

conflict of interest.       See Rybak v. Commissioner, 91 T.C. 524,

565 (1988).       Petitioner's reliance on the advice of Mr. Moore was

unreasonable under the circumstances.

       Outside of Mr. McDevitt and Mr. Moore, petitioner made no

other inquiry into the viability of this partnership's proposed

research and operations.       The Court finds it notable that the

offering listed at least 15 "potential uses of jojoba nuts"; yet,

petitioner failed to explore the plausibility of any of those

potential uses.       Some of the potential uses listed in the

offering were various lubricants for high-speed or high-

temperature machinery, cosmetics, shampoos and soaps, sunscreens,

pharmaceuticals, cooking oils, disinfectants, polishing waxes,

corrosion inhibitors, candles, animal feed supplements, and

fertilizer.       Being a physician, it seems logical that petitioner

would have had some access to information about the commercial



       6
          Petitioner acknowledged in his testimony that he knew
Mr. Moore was receiving commissions for finding investors to
purchase the limited partnership interests.
                             - 16 -

use of jojoba in the pharmaceutical arena; however, petitioner

failed to pursue this possibility.    Petitioner's failure to

investigate independently any of the enumerated potential uses of

jojoba plants was unreasonable under the circumstances.

     Petitioner had no legal background or training, limited

agricultural background or training, and no prior background with

jojoba plants; yet, he consulted few, if any, sources of such

information prior to investing in Blythe I.    Petitioner's limited

youthful background with the growth and sale of coffee and citron

should have educated petitioner that no two plant species respond

to identical treatment and that each has a different potential

for commercial production and sales.7   Petitioner appears to

argue that it would have been difficult for him to locate an

appropriate expert to examine the investment.    On the contrary,

the Court does not believe that petitioner would have experienced

a great degree of difficulty in contacting the agricultural

department of a nearby college or university or going to another

reliable source to inquire about the research and development of

jojoba plants and their potential commercial usage, if any.     A




     7
          Indeed, petitioner testified that the commercial market
for coffee was much larger and more lucrative than that for
citron.
                              - 17 -

reasonable and ordinarily prudent investor would have at least

attempted to make this type of inquiry under the circumstances.8

     Petitioner was not a naive investor and should have

recognized the need for independent professional advice.   See

LaVerne v. Commissioner, 94 T.C. 637, 652 (1990), affd. without

published opinion 956 F.2d 274 (9th Cir. 1992), affd. in part

without published opinion sub nom. Cowles v. Commissioner, 949

F.2d 401 (10th Cir. 1991); Glassley v. Commissioner, T.C. Memo.

1996-206.   In fact, the offering cautioned that prospective

investors should not "construe this memorandum or any prior or

subsequent communications as constituting legal or tax advice"

and urged investors to "consult their own counsel as to all

matters concerning this investment."   The offering was replete

with statements, including the cover page statement that "THIS

OFFERING INVOLVES A HIGH DEGREE OF RISK", warning of tax risks

involved with the investment and the highly speculative nature of

the commercial viability of the jojoba plant.   The offering

contained inconsistent information, such as the statement on page

9 that the general partner "has limited experience in dealing in


     8
          Petitioner testified that, at the time of his
investment in Blythe I, he was aware of jojoba research being
conducted at the University of California at Riverside and the
University of Arizona at Tucson. Also, in Utah Jojoba I Research
v. Commissioner, T.C. Memo. 1998-6, the Court noted that there
were experimental jojoba plantations located at the University of
California at Riverside, of which the general partner of Blythe
I, Mr. Kellen, was aware.
                               - 18 -

Jojoba beans and is mainly relying on the R & D Contractor to

develop technology and plant cultivars over the term of the R & D

Agreement", contrasted with the statement on page 34 that the

general partner "pioneered the development of the Blythe Airport

as an alfalfa ranch and jojoba farming in Desert Center" and was

"familiar with the development of jojoba, citrus, vineyards,

alfalfa and asparagus."    Such inconsistencies should have raised

a healthy suspicion in the mind of a reasonable and ordinarily

prudent investor, even one lacking any legal, tax, or

agricultural background.    However, petitioner did not carefully

read the offering, nor did he make any effort to have the

investment explained to him prior to committing to invest in

Blythe I.

     The Court is mindful that the Court of Appeals for the Ninth

Circuit (Ninth Circuit), the court to which an appeal in this

case would lie, has held that experience and involvement of the

general partner and the lack of warning signs could reasonably

lead investors to believe they were entitled to deductions in

light of the undeveloped state of the law regarding section 174.

See Kantor v. Commissioner, 998 F.2d 1514 (9th Cir. 1993), affg.

in part and revg. in part T.C. Memo. 1990-380.   In its holding,

the Ninth Circuit explained that the Supreme Court's decision in

Snow v. Commissioner, 416 U.S. 500 (1974), left unclear the

extent to which research must be "in connection with" a trade or
                              - 19 -

business for purposes of qualifying for an immediate deduction

under section 174.   However, in the instant case, the partnership

was neither engaged in a trade or business nor conducting

research and development, either directly or indirectly.

Additionally, the experience in jojoba research and development

of the general partner of Blythe I, Mr. Kellen, was questionable,

at best, as evidenced by conflicting statements in the offering.

Also, it is apparent from the evidence presented in this case

that Mr. Kellen had minimal involvement in the partnership.

Petitioner is precluded from relying upon a "lack of warning" as

a defense to negligence, when there is no evidence that a

reasonable investigation was ever made, and the offering

materials contained many warnings of the tax risks associated

with the investment.

     On this record, the Court finds that petitioner did not

exercise the due care of a reasonable and ordinarily prudent

person under the circumstances.   Consequently, the Court holds

that petitioner is liable for the negligence additions to tax

under section 6653(a)(1) and (2) for each of the years at issue.

Respondent is sustained on this issue.

     The second issue is whether petitioner is liable for the

addition to tax under section 6661(a) for a substantial

understatement of tax for 1982.   Section 6661(a), as amended by

the Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509,
                               - 20 -

sec. 8002, 100 Stat. 1951, provides for an addition to tax of 25

percent of the amount of any underpayment attributable to a

substantial understatement of income tax for the taxable year.      A

substantial understatement of income tax exists if the amount of

the understatement exceeds the greater of 10 percent of the tax

required to be shown on the return, or $5,000.    Sec.

6661(b)(1)(A).   Generally, the amount of an understatement is

reduced by the portion of the understatement that the taxpayer

shows is attributable to either (1) the tax treatment of any item

for which there was substantial authority, or (2) the tax

treatment of any item with respect to which the relevant facts

were adequately disclosed on the return.    Sec. 6661(b)(2)(B).    If

an understatement is attributable to a tax shelter item, however,

different standards apply.    First, in addition to showing the

existence of substantial authority, a taxpayer must show that he

reasonably believed that the tax treatment claimed was more

likely than not proper.   Sec. 6661(b)(2)(C)(i)(II).     Second,

disclosure, whether or not adequate, will not reduce the amount

of the understatement.    Sec. 6661(b)(2)(C)(i)(I).

     Substantial authority exists when "the weight of the

authorities supporting the treatment is substantial in relation

to the weight of authorities supporting contrary positions."

Sec. 1.6661-3(b)(1), Income Tax Regs.    Petitioner has failed to
                              - 21 -

show that substantial authority existed for the tax treatment of

the Blythe I loss on his 1982 return.

     Adequate disclosure of the tax treatment of a particular

item may be made either in a statement attached to the return or

on the return itself, if it is in accordance with the

requirements of Rev. Proc. 83-21, 1983-1 C.B. 680.    Sec. 1.6661-

4(b) and (c), Income Tax Regs.   The record indicates that

petitioner did not attach a statement to his 1982 return

disclosing the specific facts surrounding the Blythe I loss

deduction.   Rev. Proc. 83-21, supra, applicable to tax returns

filed in 1983, lists information that would be deemed sufficient

disclosure if listed on the return itself, without the necessity

of attaching an additional statement to the return.    However,

none of the specific tax items referenced in Rev. Proc. 83-21,

supra, are relevant to the instant case.   If disclosure is not

made in compliance with the regulations or the revenue procedure,

adequate disclosure on the return may still be satisfied if

sufficient information is provided to enable respondent to

identify the potential controversy involved.     Schirmer v.

Commissioner, 89 T.C. 277, 285-286 (1987).     However, a mere

claiming of the loss, without further explanation, is not

sufficient to alert respondent to the controversial section 174

deduction of which the partnership loss consisted.    Petitioner

has failed to show that the relevant facts pertaining to his
                              - 22 -

Blythe I loss deduction were adequately disclosed on his 1982

return.9

     Finally, section 6661(c) provides the Secretary with the

discretion to waive the section 6661(a) addition to tax if the

taxpayer shows he acted with reasonable cause and in good faith.

This Court reviews the Secretary’s failure to waive the addition

to tax for abuse of discretion.   See Martin Ice Cream Co. v.

Commissioner, 110 T.C. 189, 235 (1998).     Petitioner argues that

he acted in good faith and reasonably relied upon the advice of

Mr. McDevitt in claiming the relevant loss.    However, nothing in

the record indicates that petitioner requested a waiver for good

faith and reasonable cause under section 6661(c).      In the absence

of such a request, this Court cannot review respondent’s

determination for an abuse of discretion.    See id.     In any event,

petitioner has not shown that he met the tests of reasonable

cause and good faith.

     Petitioner failed to prove that he had substantial authority

for his treatment of the partnership loss and that he adequately

disclosed the relevant facts of that treatment.    The

understatement upon which the addition to tax was imposed was

$10,340.   The understatement is substantial because it exceeds



     9
          As noted earlier, even if an adequate disclosure had
been made on the return, such disclosure would not reduce the
amount of the understatement attributable to a tax shelter item.
                               - 23 -

the greater of $5,000 or 10 percent of the amount required to be

shown on the return.10   On this record, the Court holds that

petitioner is liable for the addition to tax under section

6661(a) for a substantial understatement of tax for 1982.

Respondent is sustained on this issue.



                                         Decision will be entered

                                    for respondent.




     10
          The amount required to be shown on the return was
$34,551, 10 percent of which equals $3,455.10.
