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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
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Last modified: May 25, 2011