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Even where a taxpayer fails to comply with the methods set
forth by the regulations, this Court has indicated that a
taxpayer may also satisfy the requirements of adequate disclosure
for purposes of section 6662 if he provides sufficient facts on
the face of his return that enable respondent to identify the
potential controversy involved. Schirmer v. Commissioner, supra
at 286. We hold that petitioners have satisfied the adequate
disclosure requirement.
Petitioners properly completed their 1989 Federal income tax
return identifying the property in question, the amount of gain
involved, and the facts affecting the tax treatment.
Furthermore, on the face of petitioners' return there are only
two items reported: (1) Business income generated by a liquor
store as reported on Schedule C, and, (2) a transaction involving
the same liquor store which produced zero capital gain as
reported on Schedule D. It appears likely that the items
reported generated respondent's audit. The information reported
was sufficient to apprise respondent of and enable respondent to
identify the potential controversy involved here, that is,
whether petitioners actually engaged in a tax-free exchange. We
hold that petitioners have adequately disclosed the relevant
facts relating to the questioned transaction.
We hold that petitioners are not liable for the addition to
tax under section 6662(a).
To reflect the foregoing,
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Last modified: May 25, 2011