Melvin D. Lee - Page 5

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          petitioner claimed various deductions relating to State and local           
          income taxes, an NOL carryover, a long-term capital loss                    
          carryover, suspended passive activity losses relating to the                
          Peach Tree Property, legal fees relating to Belmont Gardens, and            
          the worthlessness of the Dejanu loan.                                       
               On audit, respondent disallowed the claimed deductions                 
          primarily on the grounds of lack of substantiation, as set forth            

                                                      Amount      Amount              
                                                    Claimed by  Allowed by            
          Nature of Deduction Claimed               Petitioner  Respondent            
          State and local income taxes               $ 17,385   $3,532                
          NOL carryforward from 1996                 25,990        0                  
          Long-term capital loss carryforward1       206,881        0                 
          Suspended passive activity losses          35,289        0                  
          Legal fees relating to Belmont Gardens     40,466        0                  
          Worthless Dejanu loan2                     15,000        0                  
               1From prior years, petitioner claimed a long-term capital loss carryforward
          into 1997 of $206,881, of which $88,430 was used to offset in full a net long-term
          capital gain for 1997, $3,000 was claimed as a long-term capital loss for 1997, and
          the $115,451 balance was reported as a long-term capital loss carryforward to 1998.
               2On his 1997 individual Federal income tax return, petitioner claimed a
          business bad debt relating to the Dejanu loan on schedule C, Profit or Loss From
          Business.  Petitioner now concedes that the loan should be treated as a nonbusiness
          bad debt and reported as a short-term capital loss in 1997, the alleged year of

               Respondent disallowed the deduction for the Dejanu loan                
          because respondent determined that the loan became worthless in             
          1995, not 1997.                                                             
               Respondent also determined that petitioner was liable under            
          section 6651(a) for an addition to tax for failure to timely file           

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