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Notice of Deficiency
On February 15, 1996, respondent issued a notice of deficiency
to petitioner. The notice stated that upon conducting a bank
deposit analysis of petitioner's City National Bank accounts, the
Commissioner determined that petitioner failed to report taxable
income of $167,693 in 1987, $85,204 in 1988, and $259,957 in 1989.
On May 10, 1996, petitioner filed a petition with this Court,
denying that she had any unreported taxable income during the years
in issue. In the answer filed on June 24, 1996, respondent
asserted that some of the bank deposit sources were verified.
Settlement Negotiations
In late July 1996, Mr. Guterman received a letter from Appeals
Officer Steve Millang requesting a settlement conference for August
12, 1996. The meeting was never scheduled due to the fact that
Mr. Guterman was awaiting the result of a bank deposit analysis
conducted by Steve Slatkin, an expert retained by Mr. Guterman.
Additionally, Mr. Guterman was awaiting the production of
additional bank deposit documents in the IRS's possession. Appeals
Officer Millang forwarded the additional documents to Mr. Guterman.
On or about September 24, 1996, Mr. Guterman wrote District
Counsel Linas Udrys and requested the latter to obtain additional
bank deposit information from the CID. On November 5, 1996,
Appeals Officer Millang wrote Mr. Guterman advising that the CID
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