                   T.C. Memo. 1996-68



                UNITED STATES TAX COURT



           CHARLES A. BALLARD, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 10333-94.               Filed February 20, 1996.



     B is an S corporation involved in the business of
yacht chartering. P, the sole shareholder of B,
claimed losses passed through from B. R disallowed P’s
losses on the ground that B’s activity was not engaged
in for profit.
     1. Held: B’s yacht chartering activity was not
engaged in for profit within the meaning of sec. 183,
I.R.C.
     2. Held, further, sec. 6653(a), I.R.C., addition
to tax is not sustained against P.
     3. Held, further, sec. 6661, I.R.C., addition to
tax is sustained against P.



James S. Kaplan, for petitioner.

Moira L. Sullivan and Paul T. Muniz, for respondent.
                                 - 2 -


                MEMORANDUM FINDINGS OF FACT AND OPINION

     HALPERN, Judge:     By notice of deficiency dated March 17,

1994, respondent determined deficiencies and additions to tax

against petitioner as follows:

                                     Additions to Tax
                               Sec.            Sec.     Sec.
    Year    Deficiency    6653(a)(1)(A) 6653(a)(1)(B)   6661
                                                1
    1986     $32,153          $1,608                    ---
                                                1
    1987      53,585           2,679                  $13,396
      1
          50 percent of interest due on deficiency amount.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

     After concessions by the parties, the issues remaining for

decision are:    (1) Whether petitioner may deduct losses incurred

by his wholly owned S corporation, Ballard Marine, Inc. (Ballard

Marine), in its operation of its yacht chartering business, or

whether such deductions are nondeductible because they were

incurred in an activity not engaged in for profit within the

meaning of section 183(a), and (2) whether petitioner is liable

for the additions to tax determined by respondent.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulations of fact filed by the parties and attached

exhibits are incorporated herein by this reference.
                               - 3 -

     At the time of filing the petition, petitioner resided in

Philadelphia, Pennsylvania.



Petitioner

     During 1986 and 1987, petitioner was a managing director of

an investment banking firm (the firm).   In August 1986, a major

portion of the firm was sold and, as a result thereof, petitioner

received in excess of $2 million.

     Prior to the formation of Ballard Marine, discussed infra,

petitioner did not participate in boating for recreation.   He had

no experience as a seaman or with the mechanical operation of

yachts, and he had very little personal experience in boating.

Prior to 1986, he was not a member of any yacht club.

     Petitioner became interested in yacht chartering as a result

of his activities in arranging entertainment for clients and

others connected with the firm.

     From late 1985 to the middle of 1986, petitioner visited

numerous boat shows.   At those boat shows, vendors described

yacht investment plans.

     Prior to forming Ballard Marine and causing it to purchase a

boat, petitioner did not prepare a formal business plan.    He did

consider the economics of the yacht chartering business, as

follows:   He planned to spend approximately $250,000 on a boat.

He believed that many operating costs (e.g., captain, crew, and

fuel) would be paid by the charterer.    He assumed that charterers
                                - 4 -

would be forthcoming and willing to pay a large enough daily

charter fee so that he would break even on his investment with

the boat being chartered only 3 to 5 days a month.

     Petitioner made his Federal income tax returns for 1986 and

1987 on the basis of a calender year.

Ballard Marine

     Ballard Marine, a Maine corporation, was organized on

September 2, 1986.    The articles of incorporation of Ballard

Marine fail to state any purpose for which the corporation was

organized.    Petitioner was the sole initial director of the

corporation.    The initial officers of Ballard Marine were a

president and a treasurer.    Petitioner was appointed to both

offices.    Ballard Marine elected to be an S corporation within

the meaning of section 1361(a).    Ballard Marine’s election to be

an S corporation was effective for its first taxable year.

Ballard Marine is a calender year taxpayer.

     By contract dated October 17, 1986, Ballard Marine purchased

a 49-foot, MY MK III Gulfstar motor yacht (the yacht) for a total

contract price of $300,000.    Ballard Marine also paid a Florida

sales tax of $15,000.    Ballard Marine financed $175,000 of the

purchase price of the yacht with a bank loan.    The yacht was

delivered to Ballard Marine on October 23, 1986, in Annapolis,

Maryland.

     In connection with Ballard Marine’s purchase of the yacht,

Ballard Marine, or petitioner, consulted with legal counsel.
                                - 5 -

Ballard Marine hired Walter Schintzius (Schintzius), a yacht

broker, for advice on, among other things, the operating

characteristics of the yacht, its acceptability as a charter

boat, and its residual value.   Schintzius did not advise

petitioner on the day-to-day operations or economics of a yacht

chartering business.

     Ballard Marine obtained insurance against various risks

associated with operating the yacht.

     On January 26, 1987, the U.S. Coast Guard issued a

certificate of documentation with respect to the yacht, which

shows that the vessel was then documented for pleasure use.

Florida

     In late October 1986, Ballard Marine hired Captain George

Newman (Newman), owner of Newman Marine Services (Newman Marine),

to move the yacht from Annapolis, Maryland, to the Lighthouse

Point Yacht Club (Lighthouse Point), Lighthouse Point, Florida.

     In 1987, petitioner purchased land in Lighthouse Point,

Florida, on which he eventually built a house for his own use.

     Ballard Marine also hired Newman to oversee both the

outfitting of the yacht and its maintenance and repair while it

was in Florida.    Newman was not engaged in the charter business

in 1986 or 1987.

     On December 3, 1986, Ballard Marine moved the yacht to the

Boca Raton Resort and Club, which is in southern Florida, and

which was the site of a meeting of the Securities Industry
                               - 6 -

Association.   Petitioner attended that meeting.    A colleague of

petitioner’s from the firm had reserved the yacht for his use on

the evening of December 3, 1986.    However, that individual

canceled the reservation.

     While at the Boca Raton Resort and Club, the yacht was

visited by Betty Corson (Corson), a yacht charter agent whom

petitioner had known for some time and through whom petitioner

had chartered yachts in connection with his employment or his

work with the Securities Industries Association.

     From December 1986 through April 1987, petitioner contacted

other charter agents and several individuals and informed them of

the availability of the yacht for charter.    By memorandum dated

April 15, 1987, petitioner offered a 25-percent discount on

charters to certain colleagues at the firm.    In April 1987,

Ballard Marine had printed 3,550 brochures describing the yacht

and stating that it was available for charter.     Brochures were

sent to Corson and others.

     Ballard Marine offered the yacht for bareboat charter.

Under that arrangement, the chartering party charters the boat

and independently contracts for a captain and crew.     Sometimes

the chartering party will be qualified to operate the boat and

may not need a captain or crew.    Effective May 1, 1987, the

bareboat charter rates for the yacht were as follows:
                                - 7 -

                                Bareboat Charter Rates1

                           Chesapeake Bay      Florida/Bahamas
                2
Seven day week                $3,000               $3,200
(7 days/6 nights)

Five day week2                 2,500                2,750
(5 days/4 nights)

Weekends2                      1,100                1,300
(2 days/1 night)

Day Rates3                       600                  700

½ Day3                           400                  450

Hourly3                          175                  200
 1
     Excludes cost of fuel, dockage, and stores.
 2
     Limited to a party of four.
 3
     Limited to a party of six.

Those rates were within 5 to 10 percent of the rates set by

Ballard Marine during the preceding 5 or 6 months that it held

the yacht out for charter, and those rates were not changed

during the remainder of time that Ballard Marine owned the yacht.

Petitioner was accorded a discount of 40 percent when he

chartered the yacht from Ballard Marine.

       On May 13, 1987, an entity named Gulfcoast Farms chartered

the yacht for the stated rate of $3,200 a week for a 7-day trip

to Key West, Florida.

       No other charters were made before the yacht was moved north

at the end of May 1987, except that petitioner used the yacht on

three occasions.    Petitioner was expected to pay for his use of

the yacht.    Petitioner did not pay for his 1987 use of the yacht

until sometime in 1988.
                                - 8 -

Maryland

     On May 24, 1987, Newman moved the yacht from Lighthouse

Point to Mears Great Oak Landing, which is in Maryland and on the

Chesapeake Bay.    He returned the yacht to Lighthouse Point on

October 5, 1987.

     Mears Great Oak Landing is 2-1/2-hours travel time, by car,

from petitioner’s home in Philadelphia.

     Petitioner arranged with an individual, David Hart (Hart) to

maintain and keep up the yacht while it was at Mears Great Oak

Landing.    Hart was to try and obtain charters.   At Mears Great

Oak Landing there was a meeting center with approximately

30 rooms and a 9-hole golf course.      The yacht was the only yacht

for charter at Mears Great Oak Landing.     The meeting director at

Mears Great Oak Landing, and possibly other meeting center

personnel, also were asked to try and obtain charters.

     Except for use made by petitioner of the yacht, there were

no charters of the yacht during the time it was at Mears Great

Oak Landing.    Petitioner made substantial use of the yacht on

weekends.    Petitioner paid for his use of the yacht in 1988.

Florida

     After the yacht was returned to Florida in October 1987, no

use of it was made by anyone other than petitioner.

Trade-In of the Yacht and Termination of Charter Business

     In January 1988, Ballard Marine disposed of the yacht in a

transaction whereby it acquired another boat, a 56-foot Hatteras
                                   - 9 -

flying bridge motor yacht (the second yacht).    Ballard Marine

agreed to pay $530,000 for the second yacht, but was credited

with $300,000 as the trade-in value of the yacht.

     Ballard Marine was not successful in chartering the second

yacht.   Sometime in 1988, Ballard Marine terminated its charter

operations.

Books and Records; Ballard Marine’s Tax Returns

     Petitioner kept records of Ballard Marine’s income and

expenses on a computer.   Petitioner opened a bank account for

Ballard Marine.    Ballard Marine obtained oil company credit cards

in its own name.   It dealt in its own name with the power company

in Florida.   It had its own stationery.

     Ballard Marine made returns of income for 1986 and 1987 on

Forms 1120S, U.S. Income Tax Return for an S Corporation.    On

those forms, Ballard Marine reported the following items of

income and deduction:

                                     1986      1987
      Gross income             $        0    $13,982
        Deductions:
          Interest                  2,439     16,175
          Depreciation             54,806     80,383
          Insurance                 3,465      3,210
          Legal fees                  307      ---
          Consulting
            fees                    5,170       ---
          Transport
            crew/fuel               5,171     18,267
          Mooring/
            docking                 2,281     8,001
          Miscellaneous                50     2,865
          Telephone &
            utilities                ---        1,084
          Repairs and
            maintenance              ---      10,251
                              - 10 -

          Advertising and
            promotion           ---          4,435
          Professional fees     ---          3,422
      Income (loss)         ($73,689)    ($134,111)
     Barry M. Strauss (Strauss), the managing principal of

Barry M. Strauss Associates, Ltd. (Associates), is a tax attorney

and C.P.A. specializing in advising investment bankers in

accounting, tax, and financial matters.   Ballard Marine’s Federal

income tax returns for 1986 and 1987 were prepared by an employee

of Associates.

Petitioner’s Tax Returns

     Petitioner made returns of income for 1986 and 1987 on

Forms 1040, U.S. Individual Income Tax Return.   On those forms,

petitioner reported losses from Ballard Marine in the amounts of

$73,689 and $134,111, respectively.

     Petitioner’s Federal income tax returns for 1986 and 1987

were prepared by an employee of Associates.

     Strauss had come to represent petitioner in 1984, when the

firm retained Associates to either prepare or review the tax

returns of managing directors to assure that all tax matters were

properly reported by them.   Associates was so retained in order

to avoid having the firm embarrassed either by the Securities and

Exchange Commission or the general media on account of the tax

problems of managing directors.

Not an Activity Engaged In for Profit

     Ballard Marine’s activity of holding the yacht for charter

was not an activity engaged in for profit.
                                  - 11 -

Negligence; Substantial Understatement

       No portions of petitioner’s underpayments for 1986 and 1987

were due to negligence.

       The principal purpose of Ballard Marine was not tax

avoidance.

                                  OPINION

I.    Introduction

       Under section 1366, a shareholder in an S corporation is

entitled to take into account his or her pro rata share of the

corporation’s losses.     See sec. 1366(a).   Ballard Marine was an S

corporation for 1986 and 1987, and we must determine the extent

of Ballard Marine’s allowable losses for those years.

Respondent’s explanation for her adjustments with respect to

those losses is that they were incurred in an activity not

entered into for profit.     Respondent has also determined

additions to tax as set forth above.

II.    Deficiencies

       A.   Section 183--For-Profit Requirement

       Section 183(a) provides:

       In the case of an activity engaged in by an individual
       or an S corporation, if such activity is not engaged in
       for profit, no deduction attributable to such activity
       shall be allowed under this chapter except as provided
       in this section.

       Section 183(c) provides:

       For purposes of this section, the term “activity not
       engaged in for profit” means any activity other than
       one with respect to which deductions are allowable for
                               - 12 -

     the taxable year under section 162 or under paragraph
     (1) or (2) of section 212.

     The question we must decide is whether Ballard Marine’s

activity with regard to holding the yacht for charter (the

charter activity) constituted an activity “not engaged in for

profit”.

     B.    Actual and Honest Profit Objective

     An activity is engaged in for profit if the taxpayer has an

“actual and honest objective of making a profit.”     Keanini v.

Commissioner, 94 T.C. 41, 46 (1990).    “Although the section 183

analysis with respect to the activities of a subchapter S

corporation is applied at the corporate level, section 1.183-

1(f), Income Tax Regs., * * * [a taxpayer’s] intent is

attributable to his wholly owned subchapter S corporation.”

Sousa v. Commissioner, T.C. Memo. 1989-581.     Moreover, although

the expectation of profit need not be reasonable, it must be

shown that a bona fide profit objective did exist.     Golanty v.

Commissioner, 72 T.C. 411, 425-426 (1979), affd. without

published opinion 647 F.2d 170 (9th Cir. 1981); sec. 1.183-2(a),

Income Tax Regs.    Profit in this context means economic profit,

independent of tax savings.    Hulter v. Commissioner, 91 T.C. 371,

393 (1988).    Whether Ballard Marine engaged in the charter

activity with the requisite profit objective is a question of

fact to be determined from all the facts and circumstances;

petitioner bears the burden of proof.    Rule 142(a); Keanini v.
                               - 13 -

Commissioner, supra at 46; Golanty v. Commissioner, supra at 426;

sec. 1.183-2(a), Income Tax Regs.

     Section 1.183-2(b), Income Tax Regs., provides a

nonexclusive list of factors to be considered in determining

whether an activity is engaged in for profit.    No single factor

is determinative.   Keanini v. Commissioner, supra at 47; Taube v.

Commissioner, 88 T.C. 464, 479-480 (1987); sec. 1.183-2(b),

Income Tax Regs.

     Taking into account the factors set forth in section 1.183-

2(b), Income Tax Regs., and based on the record as a whole, we

conclude that the charter activity was not an activity entered

into for profit, and we have so found.

     C.   Petitioner Had No Objective To Make a Profit

     The regulations provide that “Although a reasonable

expectation of profit is not required, the facts and

circumstances must indicate that the taxpayer entered into the

activity * * * with the objective of making a profit.”    Sec.

1.183-2(a), Income Tax Regs.

     We conclude that, although petitioner certainly would have

liked Ballard Marine to make a profit, that was not his objective

in organizing and operating Ballard Marine.

     In determining petitioner’s objective in organizing and

operating Ballard Marine, we have the benefit of neither a

statement of corporate purpose (in Ballard Marine’s articles of

incorporation) nor a formal business plan.    Nevertheless,
                                - 14 -

petitioner has made clear his business plan:    Buy an asset (a

yacht) that he hoped would retain its value and lease (charter)

it out for short periods at rates that will quickly return the

capital cost of the asset.    Indeed, petitioner proposes that we

find as facts the following:

     Petitioner was an expert at the Firm in designing
     investment programs for the short-term utilization of
     capital assets at lease rates equal to a high
     percentage of their initial cost. * * *

     Petitioner noted significant similarities between the
     yacht charter business and these programs in that they
     both involved assets that retain a high percentage of
     their initial value, a benefit accruing to the asset’s
     owner.

Petitioner also proposes that we find:

     Petitioner believed that he would have an advantage in
     obtaining yacht charters because of his contacts with
     firms in the securities industry, which he knew from
     his own direct experience were potential frequent users
     of yacht charters.

Respondent has made various objections to those proposed

findings, and we have not made findings of fact in accordance

with those proposed findings.    The parties have stipulated,

however, and we have found, that petitioner had no experience as

a seaman or with the mechanical operation of yachts, and he had

very little personal experience in boating.

     Numerous factors lead us to conclude that petitioner had no

objective to make a profit.    Petitioner testified that he had

calculated the amount of revenue he needed “to break even”.     He

did not testify, however, that he or anyone else determined how
                              - 15 -

realistic it was to expect Ballard Marine to earn such revenue.

Ballard Marine hired Schintzius, a yacht broker, who advised on

the operating characteristics of the yacht, its acceptability as

a charter boat, and its residual value.    Schintzius, however, did

not advise petitioner on the day-to-day operations or economics

of a yacht chartering business.    Before organizing Ballard

Marine, from late 1985 to 1986, petitioner visited numerous boat

shows.   At those boat shows, vendors described yacht investment

plans.   We do not doubt that, before forming Ballard Marine,

petitioner considered that he might reduce, or even recoup, his

cost in purchasing a yacht by holding it out for charter.      He

knew that there was at least some market for yacht charters.

Indeed, he had arranged entertainment for clients of the firm on

chartered yachts.   We are unconvinced, however, that petitioner’s

objective in causing Ballard Marine to purchase and operate the

yacht was to earn a profit.   Did petitioner contemplate the

possibility of earning a profit?    Yes, we believe that he did, at

least in the sense that a profit was possible if (and that is a

big if) the value of the yacht would decrease at a rate lower

than the rate at which its cost could be recouped out of charter

revenues.   Although petitioner may have been an expert in certain

aspects of commercial transactions that accomplished just that,

the insight at the core of both those commercial transactions and

petitioner’s hopes with regard to the yacht seems to us quite

commonplace.   We do not equate an objective to make a profit with
                              - 16 -

the realization (even coupled with the willingness to act on that

realization) that, if sufficient revenues could be produced, a

profit could be earned.   Indeed, petitioner has failed to show us

that substantial charter revenue was realistic for Ballard

Marine.

     Certain trappings of a profit objective are here:   Ballard

Marine was formed as a business corporation; it had advisers; it

kept certain records of its income and expenses; it did offer the

yacht out for charter; it did produce advertising brochures; and

it did deal with petitioner as an outsider (although at a

40-percent discount).   Those trappings, however, are insufficient

to convince us of petitioner’s objective to earn a profit.

Petitioner was the sole shareholder of Ballard Marine, so that

Ballard Marine’s policy of charging him for his use of the yacht

makes little sense except as a for-profit trapping, for tax

purposes.   Indeed, although petitioner claims on brief that his

out-of-pocket costs were “far in excess of any tax benefits”, he

has failed to detail for us the facts that would prove that

conclusion.   Clearly, Ballard Marine was unsuccessful in the

charter business.   Nevertheless, petitioner did not consider a

general reduction in prices to try and attract more business.

     Finally, we are influenced by the fact that petitioner did

make personal use of the yacht.   He used it on weekends, when he

was free from work.   In the winter, he kept it in Florida, at

Lighthouse Point, where, in 1987, he purchased land to build a
                               - 17 -

house.    In the summer, he kept it on the Chesapeake Bay, which is

only 2-1/2 hours from his home in Philadelphia.    The tax cost of

paying Ballard Marine for his personal use seems to us a small

cost for petitioner to have paid if it would have helped him

establish the bona fides of a profit objective.    We need not

determine what petitioner’s objective was in acquiring the yacht

(to resolve this case, it is sufficient that we determine only

whether it was to earn a profit).    Nevertheless, we believe that

petitioner’s objective in acquiring the yacht was to have it

available for his personal use.    As we have said, we believe that

petitioner would have liked to make a profit with the yacht.

Nevertheless, we do not believe that that was his objective in

causing Ballard Marine to acquire and operate the yacht.    Cf.

Antonides v. Commissioner, 91 T.C. 686, 697 (1988), affd. 893

F.2d 656 (4th Cir. 1990) (“Chartering a yacht to others in order

to afford to keep it through tax savings for one’s personal

enjoyment is not the same as having a profit objective.”).

     D.    Conclusion

     Ballard Marine’s activity of holding the yacht for charter

was not an activity engaged in for profit within the meaning of

section 183(c).    Accordingly, Ballard Marine’s expenses

attributable to that activity are allowable as deductions only to

the extent provided for in section 183(b).
                                  - 18 -

III.   Additions to Tax

       A.   Negligence

       Respondent has determined additions to tax under section

6653(a)(1)(A) and (B) for both 1986 and 1987.      Section

6653(a)(1)(A) imposes an addition to tax equal to 5 percent of

the entire underpayment if any portion of such underpayment is

due to negligence.       Section 6653(a)(1)(B) imposes an addition to

tax equal to 50 percent of the interest payable under section

6601 with respect to the portion of the underpayment due to

negligence.     Negligence is lack of due care or failure to do what

a reasonable and ordinarily prudent person would do under the

circumstances.     E.g., Neely v. Commissioner, 85 T.C. 934, 947

(1985).

       Petitioner was unable to carry his burden of proving that

Ballard Marine had the objective of making a profit.      However,

the mere fact that petitioner’s proof was inadequate does not

require us to find that the underpayment with respect to the

charter activity was due to negligence.      In another recent yacht

case, we found no negligence based in part on the passive role of

the taxpayer in the decision to engage in the charter activity.

Antonides v. Commissioner, supra at 700.       Petitioner’s role here

certainly was not passive.      Nevertheless, we find another

mitigating circumstance.      Both Ballard Marine’s and petitioner’s

returns were prepared by an employee of Barry M. Strauss

Associates, Ltd. (Associates).      Associates had been retained by
                              - 19 -

the firm to assure that tax returns of managing directors

contained matters properly reported.   Barry M. Strauss testified,

and we are satisfied, that Associates’ personnel were qualified

as tax experts, reviewed petitioner’s returns, were aware of

Ballard Marine’s activities, and advised petitioner that his

reporting positions were proper.1   Petitioner can rely on such

advice to avoid an addition to tax for negligence.    See, e.g.,

Horn v. Commissioner, 90 T.C. 908, 942 (1988); Conlorez Corp. v.

Commissioner, 51 T.C. 467, 475 (1968).   Accordingly, we have

found that petitioner was not negligent, and we sustain no

addition to tax for negligence.

     B.   Substantial Understatement of Liability

     Respondent has determined an addition to tax under section

6661 for 1987.   Section 6661(a) provides for an addition to the

tax for any year for which there is a substantial understatement

of income tax.   A substantial understatement is defined as an

understatement which exceeds the greater of 10 percent of the tax

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

6661(b)(1)(A).   The amount of the addition to tax is 25 percent

of the underpayment attributable to a substantial understatement.

Pallottini v. Commissioner, 90 T.C. 498 (1988).     The amount of

the understatement, however, is reduced by amounts attributable


1
     That extends to certain adjustments relating to itemized
deductions that were the subject of the second stipulation of
facts and that were conceded by petitioner.
                               - 20 -

to items for which (1) there existed substantial authority for

the taxpayer's position, or (2) the taxpayer disclosed relevant

facts concerning the items with his tax return.    Sec.

6661(b)(2)(B).

     If, however, the understatement is attributable to a tax

shelter, disclosure of the item will not enable the taxpayer to

avoid the addition, and the substantial authority test will not

apply unless the taxpayer can show that he reasonably believed

the treatment causing the understatement was more likely than not

proper.    Sec. 6661(b)(2)(C)(i).   The term "tax shelter" includes

an "entity [such as an S corporation] * * * if the principal

purpose of such * * * entity * * * is the avoidance or evasion of

Federal income tax."   Sec. 6661(b)(2)(C)(ii).   Section 1.6661-

5(b)(iii), Income Tax Regs., interprets the term "tax shelter" as

follows:

     The principal purpose of an entity * * * is the
     avoidance or evasion of Federal income tax if that
     purpose exceeds any other purpose. * * *

     We do not believe that the principal purpose of Ballard

Marine was the avoidance of Federal tax, and we have so found.

No doubt Ballard Marine facilitated petitioner’s tax claim of a

profit objective by, among other things, providing him with a way

to pay for his own use of the yacht.    Nevertheless, we are

convinced that petitioner had purposes for forming Ballard

Marine, such as limiting his liability, whose importance to him

exceeded any tax avoidance purpose.     Petitioner’s understatement
                              - 21 -

is not attributable to a tax shelter within the meaning of

section 6661(b)(2)(C)(ii).

     Petitioner does not claim that adequate disclosure for

purposes of section 6661 was made on his or Ballard Marine’s

return, and, consequently, we do not address that issue.

     Petitioner does claim that substantial authority supports

his position with regard to the losses from Ballard Marine

disallowed under section 183 (the section 183 losses).    We must

decide whether petitioner’s deduction of the section 183 losses

is supported by substantial authority.   In evaluating whether a

taxpayer’s position regarding treatment of a particular item is

supported by substantial authority, the weight of authorities in

support of the taxpayer’s position must be substantial in

relation to the weight of authorities supporting contrary

positions.   Sec. 1.6661-3(b)(1), Income Tax Regs.   An authority

that is materially distinguishable on its facts generally will

have little or no relevance in determining whether substantial

authority supports the tax treatment at issue.   Antonides v.

Commissioner, 91 T.C. at 702-704; sec. 1.6661-3(b), Income Tax

Regs.   Petitioner sets forth five cases as substantial authority:

Feldman v. Commissioner, T.C. Memo. 1988-126; Slawek v.

Commissioner, T.C. Memo. 1987-438; Zwicky v. Commissioner, T.C.

Memo. 1984-471; Dickson v. Commissioner, T.C. Memo. 1983-723;

McLarney v. Commissioner, T.C. Memo. 1982-461.   All of those

cases involve a boat chartering activity and our decision that
                              - 22 -

the taxpayer entered into the activity for profit.    For the most

part, we find those cases to involve facts that are materially

distinguishable from the facts at hand.    In Feldman v

Commissioner, supra, the taxpayer purchased a boat with a proven

charter record and an established clientele; the taxpayer made no

personal use of the boat; he negotiated a favorable management

agreement, with a guaranteed minimum level of revenue.    In

Dickson v. Commissioner, supra, the taxpayer leased the boat to a

charter agency for guaranteed annual payments and made limited

personal use of the boat.   In McLarney v. Commissioner, supra,

the taxpayer regularly spent a substantial amount of time and

energy running the business; the taxpayer changed the mode of

operation to increase profitability; his personal use of the boat

was small in comparison to the number of charters.    In Zwicky v.

Commissioner, supra, the taxpayer devoted substantial amounts of

time to the charter operation; the taxpayer engaged in numerous

promotional activities to gain charters; the taxpayer made

minimal recreational use of the boat.     Slawek v. Commissioner,

supra, most closely resembles the case at hand in that there we

found that (1) the taxpayers made no real investigation of the

charter boat business before undertaking their charter activity,

and (2) they made no projections of income and expenses as a

basis for estimating whether or not the activity could be

profitable.   We also found, however, that they advertised in a

national newspaper, the Wall Street Journal, and that they made
                               - 23 -

no significant use of the boat for personal purposes.      Even

granting that Slawek is relevant, we do not find that there is

substantial authority supporting petitioner’s position.      The

following cases are an example of cases involving facts similar

to those at hand, but in which the Court found no profit

objective:   Ward v. Commissioner, T.C. Memo. 1987-215; Blake v.

Commissioner, T.C. Memo. 1981-579, affd. 697 F.2d 473 (2d Cir.

1982); Lyon v. Commissioner, T.C. Memo. 1977-239.      We find that

the authority supporting petitioner’s deduction of the section

183 losses is insubstantial.

     Petitioner has made no argument with respect to adequate

disclosure or substantial authority in connection with those

adjustments that petitioner has conceded.      We thus conclude that

petitioner concedes that section 6661(b)(2)(B) is inapplicable to

those adjustments, and we so find.      Accordingly, we sustain

respondent’s determination of an addition to tax under section

6661 except to the extent necessary to take account of

concessions made by respondent.


                                     Decision will be entered

                               under Rule 155.
