Benness M. Richards and Jane Richards - Page 10

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          dated September 3, 1996, Ms. Wynne attempted to explain that                
          petitioners did not receive special treatment from Mr. McWade in            
          the settlement of their case as follows:                                    
                    As we discussed on the telephone, I have received                 
               authorization from Mr. and Mrs. Richards to disclose                   
               the attached copy of the computer transcript of the                    
               Richards' account for 1978.  As you are aware, neither                 
               the government nor the Richards has a copy of the                      
               Richards' 1978 return.  But the information on the                     
               enclosed transcript reflects the following information                 
               concerning the 1978 return filed by the Richards.                      
                    The 1978 tax return was filed June 25, 1979, and                  
               showed an income tax liability of $3,495.  Advance or                  
               estimated payments of $8,931 were credited to the                      
               account on April 15, 1979.  On June 25, 1979, a refund                 
               of $5,489.09 was generated to the Richards (along with                 
               interest of $53.09).  On December 31, 1986, the                        
               Richards's account was credited with a tax payment of                  
               $23,000 and interest of $30,571.  The tax of $23,000                   
               and interest of $30,571 were assessed on October 5,                    
               1987 (which date was within 60 days of the date the Tax                
               Court decision became final).                                          
                    In addition to showing the above information, the                 
               enclosed transcript also shows that the Richards's                     
               reported adjusted gross income of $86,574 on their 1978                
               return, and taxable income of $11,975.  The maximum tax                
               rate in 1978 was 70 percent, but that rate did not                     
               apply until taxable income reached $203,200 for joint                  
               filers.  Accordingly, even without allowance of the                    
               Kersting related deductions, the Richards's taxable                    
               income in 1978 was not high enough to trigger the                      
               maximum tax rate of 70 percent that was used in the                    
               notice of deficiency.  Thus, any comparison of the                     
               amount asserted in the notice with the amount on                       
               decision must be made after adjusting for the proper                   
               tax rate.                                                              
                    As the Court noted during the hearing, the                        
               petition filed on behalf of the Richards alleged that                  
               Kersting related deductions were only $38,523.                         
               Assuming the petition is correct, the tax on taxable                   
               income of $50,498 ($11,975 per the return and $38,523                  
               disallowed Kersting deductions) is $15,709, which                      




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