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documentation to support the Alexanders' reporting position for
the years 1974 through 1977.
On October 20, 1988, Mr. Alexander sent a letter to
Mr. McWade enclosing copies of several documents purporting to
substantiate the Alexanders' position that they realized a loss
of $55,152.04 in 1975 on a sale of real estate to the Cadillac
Drive Apartments partnership, as opposed to the $59,080 capital
gain determined in the notice of deficiency.
On December 8, 1988, Jean Samuels (Ms. Samuels), an Appeals
auditor in the Honolulu Appeals Office, sent a two-page
memorandum to Mr. McWade addressing Mr. Alexander's October 20,
1988, letter. Ms. Samuels recommended one adjustment to the
notice of deficiency for 1975 in the Alexanders' favor.
Specifically, Ms. Samuels concluded that the Alexanders had
substantiated a higher cost basis in the property that they sold
to the Cadillac Drive Apartments partnership than had been used
in the notice of deficiency. Giving effect to this higher basis
would have reduced the Alexanders' capital gain on the sale by
$23,084. Taking into account the corresponding adjustment to the
section 1202 deduction previously allowed in the notice of
deficiency, Ms. Samuels recommended a net decrease of $11,542 to
the Alexanders' taxable income as determined in the notice of
deficiency. However, Ms. Samuels referred to certain covenants
in an agreement of sale in the file before her, and cautioned
Mr. McWade that the consideration paid to the Alexanders on the
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