                        T.C. Memo. 1997-561



                      UNITED STATES TAX COURT



                   JOHN BORETA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25943-93.          Filed December 23, 1997.



          Held: Petitioner did not adequately disclose on his
     1988 Federal income tax return relevant facts regarding the
     tax treatment of a claimed business interest expense
     deduction. Petitioner is liable for an addition to tax
     under sec. 6661, I.R.C.



     Walter B. Thurmond and Charles B. Koerth, for petitioner.

     Allan D. Hill, for respondent.



                        MEMORANDUM OPINION


     SWIFT, Judge:   Respondent determined a deficiency of

$174,822 in petitioner’s Federal income tax for 1988 and
                                - 2 -

additions to tax under sections 6653(a)(1) and 6661 in the

amounts of $8,741 and $43,706, respectively.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for 1988, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     The only issue remaining for decision is whether petitioner

adequately disclosed on his 1988 Federal income tax return

relevant facts regarding the tax treatment of a claimed business

interest expense deduction.


Background

     This case has been submitted for decision fully stipulated

pursuant to Rule 122.    When the petition was filed, petitioner

resided in Houston, Texas.

     On Schedule C (Profit or Loss from Business or Profession)

of petitioner’s 1988 Federal income tax return, petitioner

claimed a business interest expense deduction of $813,462, and

petitioner described his business solely by reference to

principal business code 5777, “Other real estate, insurance, and

financial activities”.

     Other than listing the $813,462 amount on Schedule C, on his

1988 Federal income tax return, petitioner made no special

disclosure with regard to the above claimed interest expense

deduction.
                                  - 3 -

     On audit, respondent disallowed the $813,462 claimed

interest expense deduction.   Respondent also determined additions

to tax under sections 6653(a)(1) for negligence and 6661 for

substantial understatement of tax.

     Petitioner has conceded the disallowance of the $813,462

claimed interest expense deduction and the addition to tax under

section 6653(a)(1).


Discussion

     Under section 6661(b)(1)(A), a substantial understatement of

tax occurs where the understatement exceeds the greater of $5,000

or 10 percent of the amount of tax required to be shown on the

return.   The amount of the addition to tax is equal to 25 percent

of any underpayment attributable to the substantial

understatement.   Sec. 6661(a).

     The understatement may be eliminated if substantial

authority existed for the claimed tax treatment of the item to

which the addition to tax relates or if relevant facts regarding

the taxpayer’s treatment of the item were adequately disclosed by

the taxpayer on the tax return or in a statement attached to the

return.   Sec. 6661(b)(2)(B); sec. 1.6661-4(a), Income Tax Regs.

     The adequate disclosure standard will be treated as

satisfied where a taxpayer provides information on the tax return

"that reasonably may be expected to apprise the Internal Revenue

Service of the identity of the item, its amount, and the nature
                                - 4 -

of the potential controversy concerning the item".     Sec. 1.6661-

4(b)(3), Income Tax Regs.

     For purposes of section 6661(b)(2)(B)(ii), merely listing

items such as income, expenses, and depreciation on a tax return

generally is treated by the courts as not constituting sufficient

disclosure of the nature of the potential controversy concerning

the item.   Accardo v. Commissioner, 942 F.2d 444, 453 (7th Cir.

1991), affg. 94 T.C. 96 (1990); Schirmer v. Commissioner, 89 T.C.

277, 286 (1987).

     Respondent, in Rev. Proc. 89-11, 1989-1 C.B. 797, provides a

safe harbor exception under which the listing of certain types of

items on an income tax return will be deemed adequate disclosure

for purposes of section 6661.   Business interest expense,

however, does not qualify as one of the items under the safe

harbor exception.

     Under the adequate disclosure standard of section 6661,

greater disclosure is required than the disclosure required under

section 6501(e)(1)(A).   Staff of Joint Comm. on Taxation, General

Explanation of the Revenue Provisions of the Tax Equity and

Fiscal Responsibility Act of 1982, at 218 (J. Comm. Print 1982).

The disclosure standard under section 6501(e)(1)(A) has been held

to require only an adequate “clue” to enable respondent to

identify and investigate the item.      University Country Club, Inc.

v. Commissioner, 64 T.C. 460, 469-470 (1975) (citing Colony, Inc.

v. Commissioner, 357 U.S. 28, 36 (1958)).
                                 - 5 -

     Petitioner argues that by listing on his income tax return

the $813,462 claimed interest expense deduction and because the

deduction was the second largest deduction on the income tax

return, petitioner should be treated as having adequately

disclosed, pursuant to section 6661(b)(2)(B)(ii), the potential

controversy regarding allowability of the claimed interest

expense deduction.

     Respondent argues that because petitioner, on his 1988

Federal income tax return, did not adequately describe the nature

of his business and did not name the creditor to whom the

interest was allegedly paid, petitioner did not adequately

disclose relevant facts regarding the tax treatment of the

claimed interest expense deduction.

     We agree with respondent.

     As we have indicated, business interest expense does not

qualify under the safe harbor exception of Rev. Proc. 89-11.

Therefore, listing the $813,462 claimed business interest expense

on the tax return does not, by virtue of the revenue procedure,

constitute adequate disclosure under section 6661(b)(2)(B)(ii).

     The information provided on petitioner's income tax return

did not adequately identify the nature of petitioner's business,

nor did it adequately identify the potential controversy

regarding allowability of the claimed interest expense deduction.

     We conclude that petitioner has failed to provide adequate

disclosure for purposes of section 6661(b)(2)(B)(ii), and we
                                 - 6 -

sustain respondent’s determination of the addition to tax under

section 6661.

     Prior to submission of this case for decision, petitioner

filed a motion for partial summary judgment.       Because the issues

raised therein have been decided in this opinion, petitioner’s

motion for partial summary judgment will be denied as moot.

     To reflect the foregoing,


                                              Petitioner’s motion for

                                         partial summary judgment will

                                         be denied as moot, and

                                         decision will be entered for

                                         respondent.
