Estate of Kevin J. Lorenz, Deceased, Elizabeth J. Lorenz, Personal Representative and Elizabeth J. Lorenz - Page 8

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            Lorenz improperly.  Petitioners' accountant wrote the following                             
            to respondent's counsel:                                                                    
                        It was crystal clear to me that the agreement with                              
                  respect to the fraud penalty was that a 20% penalty                                   
                  would be asserted against Mrs. Lorenz with respect to                                 
                  her share of the additional tax.  It is incredulous for                               
                  me to believe that you would not inform us as to the                                  
                  impact of such an agreement (i.e., the government would                               
                  collect the entire 75% from both the estate and the                                   
                  individuals) if the estate has sufficient assets.  You                                
                  should have been acutely aware of the fact as all of us                               
                  that the estate possessed sufficient assets from which                                
                  to collect the difference between the 20% and the 75%.                                
                  Any reasonable person would conclude that we would                                    
                  never agree to such an application as you now attempt                                 
                  to explain to us.                                                                     
                  Petitioners' counsel wrote a letter to respondent's counsel                           
            in which he said:                                                                           
                        The only clear and rational interpretation of the                               
                  negotiated penalty concession was that Mrs. Lorenz was                                
                  to pay a 20 percent fraud penalty on her one-half and                                 
                  the Estate of Kevin Lorenz was to pay the full 75                                     
                  percent penalty on its one-half.                                                      
            A.    Fraud Penalty                                                                         
                  1.    Computation of the Fraud Penalty                                                
                  The parties agree that the estate of Mr. Lorenz and Mrs.                              
            Lorenz had a deficiency in income tax; i.e., total underpayment,                            
            of $14,720 for 1989 and $54,630 for 1990.                                                   
                  Respondent calculated the fraud penalty to be paid by the                             
            estate of Mr. Lorenz by applying the 75-percent rate to Mr. and                             
            Mrs. Lorenz's total underpayment for each year in issue.                                    

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