John and Louisa A. Hodel - Page 12

               During the course of the audit, petitioners were informed              
          that the corporate returns that they filed for the FCC were                 
          incorrect in that they filed Forms 1120 using subchapter C filing           
          status when the FCC was a subchapter S corporation.  Petitioners            
          discovered that an accountant whom they hired filed an                      
          application for subchapter S status for the FCC with the IRS on             
          May 1, 1986.  Petitioners concede that they signed the                      
          application but maintain that they were not aware of its contents           
          or its impact.  As a result of this error, petitioners' personal            
          returns were affected.  Respondent proposed numerous adjustments            
          to petitioners' returns for the years at issue, including the               
          determination that petitioners were entitled to NOL's for 1989              
          and 1990.                                                                   
               Petitioner testified that during the audit conducted by an             
          IRS examiner referred to only as Ms. Van Der Heyden, the 1989 and           
          1990 NOL's, and their carryback to 1986 and 1987, respectively,             
          were discussed.  According to petitioner, in response to his                
          request to file amended returns for 1986 through 1990 to properly           
          reflect the NOL's and overpayments resulting from the carrybacks            
          thereof, Ms. Van Der Heyden explained that the policy of the IRS            
          does not permit taxpayers to file amended returns while involved            
          in an audit.  Petitioner further testified that he was assured by           
          Ms. Van Der Heyden that the IRS would allow him to carry back the           
          NOL's and obtain refunds for the resulting overpayments.                    

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