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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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