William J. Fleischaker and Donni L. Fleischaker - Page 31

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          Schedule C for petitioner's activity related to Adult Living                 
          Centers.  Instead, petitioners claimed the deductions at issue on            
          Schedules C for the oil and gas production activity.  Petitioners            
          deducted the payments of petitioner's guaranties as legal and                
          professional fees.  It is clear that petitioner did not make a               
          good-faith effort in entering the amounts of the claimed expenses            
          on the Schedules C.  Petitioners did not comply with the revenue             
          procedures, and, therefore, the safe harbor provided by the                  
          revenue procedures does not apply.                                           
               A taxpayer may also satisfy the requirements for adequate               
          disclosure by providing sufficient information on the face of the            
          return that enables the Commissioner to identify the potential               
          controversy.  See Schirmer v. Commissioner, 89 T.C. 277, 285-286             
          (1987); Hernandez v. Commissioner, T.C. Memo. 1998-46; Elliott v.            
          Commissioner, T.C. Memo. 1997-294, affd. without published                   
          opinion 149 F.3d 1187 (8th Cir. 1998); Horwich v. Commissioner,              
          T.C. Memo. 1991-465.  This method of disclosure requires more                
          than a production of a "clue" with respect to the nature of the              
          controversy.  See Horwich v. Commissioner, supra.                            
               Petitioners' disclosure was unquestionably inadequate given             
          the disparity between the claim they were asserting and the                  
          facts.  Their method of reporting the expenses disguised rather              
          than disclosed the true substance of the payments.  The mere                 
          declaration of a deduction does not entitle a taxpayer to a                  

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