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By letter dated February 29, 1996, respondent mailed to
petitioners proposed stipulations of fact. Respondent's letter
read, in part:
In considering what additional documents would be
helpful to resolve these matters, bear in mind that you
have to provide to the Court's satisfaction that you
paid each of the items disallowed by the Internal
Revenue Service and that these represent deductible
expenses, that is, that there was a valid business
purpose. Generally, source documents such as cancelled
checks, invoices and contemporaneously maintained notes
will help corroborate oral testimony. Travelling
expenses, including meals and lodging while away from
home, are subject to a more rigorous substantiation
requirement under I.R.C. � 274. These expenses require
what is referred to as "adequate records" or by
"sufficient evidence corroborating the taxpayers own
statement" concerning (1) the amount of the expense;
(2) the time and place of the travel; (3) the business
purpose of the expense; and (4) the business
relationship to the taxpayer of persons entertained.
I.R.C. � 274(d). To guide you, we have enclosed
pertinent excerpts from the I.R.C. � 274 regulations.
Concerning the proposed l0% tax for the individual
retirement account distribution under I.R.C. � 72(t),
you are correct in that one of the exceptions is where
the distributions are part of a series of substantially
equal periodic payments (not less frequently than
annually) made over the life expectancy of the employee
of the joint lives of the employee and a designated
beneficiary. I.R.C. � 72(t)(2)(A)(iv). In order to
review this issue, we need documents reflecting the
transfer of funds into the Twentieth Century and
Donald, Lufkin & Jenrette accounts which established
the individual retirement accounts, worksheets that you
prepared (or an explanation) concerning your
determination of the period over which the periodic
payments would be made and the statements reflecting
the periodic payments that were made from the date
first made to the present. In this regard, please note
that under I.R.C. � 72(t)(4), if the distributions are
modified in the first five years such that I.R.C. �
72(t)(2)(A)(iv) no longer applies, then the tax (plus
interest) retroactively applies. I.R.C. � 72(t)(4)(A).
We need to see the documents between 1993 and the
present to ensure that the distributions still qualify
for the exception. For your consideration, enclosed is
a copy of Notice 89-25, 1989-1 C.B. 662 which discusses
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