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Petitioner claimed deductions in 1989 for depreciation and
other expenses related to his drilling operation. Respondent,
after audit, concluded that petitioner's return for the tax year
1989 should be accepted with no change in the reported taxable
income for that year. Respondent's concession is an admission
that has a tendency to show that petitioner was engaged in a
trade or business in 1989. Exhibits 6 and 7 are relevant to
whether petitioner was engaged in a trade or business in 1991.12
Issue (b). Exhibits 8 and 9, Income Tax Examination and Report
for 1991
Respondent objects to the admission of the 1991 income tax
examination and report. Respondent relies on Dellacroce v.
Commissioner, 83 T.C. 269, 280 (1984), and Greenberg's Express,
Inc. v. Commissioner, 62 T.C. 324, 327 (1974), for the
proposition that the Tax Court generally does not look behind the
statutory notice of deficiency to examine the basis of the
Commissioner's determination. Petitioner asserts that Exhibits 8
12We should note that the no-change letter issued by
respondent for the tax year 1989 is not controlling evidence that
petitioner was engaged in a trade or business in that year. For
respondent's no-change letter to be binding, petitioner must show
the elements of estoppel, Fitzpatrick v. Commissioner, T.C. Memo.
1995-548, or that the no-change letter amounted to a closing
agreement. Respondent's audit and resulting no-change letter
occurred in 1992, after the relevant period. Thus, petitioner
could not have detrimentally relied on the no-change letter, a
key condition which a taxpayer claiming estoppel against the
Government must satisfy, Boulez v. Commissioner, 76 T.C. 209, 215
(1981) affd. 810 F.2d 209 (D.C. Cir. 1987), in continuing his
drilling activity. However, we have taken the letter into
account in assessing the reasonableness of petitioner’s return
position for the purpose of the sec. 6662 penalty.
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