Collin L. Dugan - Page 9

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               On January 20, 1994, two separate letters (the 30-day                  
          letters) with accompanying examination reports proposing changes            
          to their 1988 and 1991 joint Federal income tax returns were                
          mailed to the Dugans.  The proposed changes resulted primarily              
          from the disallowance of the passthrough loss from NTI in 1991              
          upon the ground that a valid S corporation election had not been            
          filed by the corporation for that year.  The 30-day letters                 
          listed Toni Williams as the contact person and were signed by               
          Connie Hailey, Chief, Service Center Examination Branch.                    
          Responses to the 30-day letters were due on or before Tuesday,              
          February 22, 1994.                                                          
               At some point prior to February 18, 1994, Ms. Tidwell                  
          referred the Dugans to Larry D. Crabtree, attorney, for                     
          assistance in connection with the proposed adjustments made in              
          the 30-day letters.  Mr. Crabtree responded to the 30-day letters           
          by letter dated February 22, 1994 (the protest letter), which was           
          sent by certified mail to the "District Director, Memphis Service           
          Center".  In the protest letter, Mr. Crabtree requested an                  
          Appeals conference to discuss the proposed adjustments set forth            
          in the 30-day letters.  In addition, Mr. Crabtree contended that            
          the relevant Form 2553 had been timely mailed so that NTI's S               
          corporation election should have been effective for its 1991                
          taxable year.                                                               
               In a telephone conversation that took place on or about                
          March 17, 1994, Mr. Crabtree discussed the protest letter with              




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