Edward and Ruth Kelly - Page 22

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                  Mr. Kelly contests respondent's determination on the ground                             
            that petitioners adequately disclosed the facts relevant to their                             
            deduction of Mr. Kelly's trading losses.  For purposes of section                             
            6661, disclosure is adequate if it is made on a properly                                      
            completed Form 8275, on a statement attached to the return in a                               
            form prescribed by the regulations, or on the return, provided                                
            that the taxpayer provides sufficient facts to enable the                                     
            Internal Revenue Service to identify the potential controversy.                               
            Schirmer v. Commissioner, 89 T.C. 277, 285-286 (1987); S. Rept.                               
            97-494 at 274 (1982); sec. 1.6661-4(b), Income Tax Regs.  The                                 
            Schedules C filed with petitioners' tax returns for 1986 and 1987                             
            show the computation of the net loss and identify Mr. Kelly's                                 
            principal business as "options dealer".  Petitioners did not                                  
            disclose the relevant facts affecting the tax treatment of the                                
            losses.  Although the identification of Mr. Kelly's business as                               
            "options dealer" is highly relevant, it was conclusory, and we                                
            have found it to be inaccurate.  The scant information on the                                 
            1986 and 1987 returns is consistent with the position that the                                
            losses are ordinary, and would not have apprised the Internal                                 
            Revenue Service of a potential controversy over characterization.                             
            The additions to tax under section 6661 are sustained.5                                       

            5Mr. Kelly also contests respondent's method of computing                                     
            petitioners' liability for the addition to tax under sec. 6661.                               
            He contends that in computing the amount of the "underpayment"                                
            for purposes of sec. 6661, respondent improperly failed to give                               
                                                                            (continued...)                




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