Peter S. Pau and Susanna H. Pau - Page 11

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          messages on the Paus' telephone answering machine upon commencing           
          the audit.  He left the initial message on July 13, 1994.                   
          Clement spoke with Susanna for the first and only time on July              
          18, 1994.  During that conversation, Clement told Susanna that              
          petitioners' 1990 return had been selected for audit and that he            
          wished to arrange an appointment with them.  A meeting was                  
          scheduled for July 25, 1994.  On July 19, 1994, Susanna left                
          Clement a message on his answering machine canceling the                    
          appointment and rescheduling it for July 27, 1994.                          
               On July 25, 1994, Clement and petitioner spoke by telephone.           
          At that time, Clement asked petitioners to sign a consent form to           
          extend the period of limitations (Form 872) for their 1990                  
          return, because the period was to expire on August 15, 1994.                
          Petitioners refused to execute the Form 872.  Petitioner                    
          erroneously told Clement that the Paus had filed their 1990 tax             
          return in June or July of 1991, so that the period had already              
               Clement and petitioner engaged in another telephone                    
          conversation on July 26, 1994, during which Clement again sought            
          the Paus' consent to extend the period of limitations.                      
          Petitioner told the agent that his accountant had advised him               
          that the period had expired; he also indicated, without                     
          elaborating, that the gross receipts reported on petitioners'               
          1990 return might have been incorrect.  They discussed their                

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