Ted and Tammy Estes - Page 5

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          representative and counsel for respondent on January 11, 1999.              
          At this meeting, several issues were discussed.  Among them were            
          various details relating to the proper cost of goods sold                   
          amounts, including the contested issue of the amount of beginning           
          inventory for 1992.  In addition, petitioners presented documents           
          regarding insurance premiums which respondent accepted as                   
          substantiation of properly deductible expenses.                             
               At a meeting on January 26, 1999, petitioners presented                
          additional material regarding the beginning inventory issue.  At            
          another meeting held on February 17, 1999, several topics were              
          again discussed, including travel and entertainment expenses, for           
          which respondent allowed a partial deduction.  At this meeting,             
          respondent made a settlement offer which proposed to make some              
          concessions favorable to petitioners in exchange for reciprocal             
          concessions.  Respondent contends that petitioners provided new             
          information with regard to the costs of goods sold issue at this            
          meeting, but petitioners dispute this contention.  After the                
          meeting, respondent made final calculations regarding the                   
          settlement offer, and forwarded the offer to petitioners on                 
          February 23, 1999.  The offer consisted of the following                    
          liabilities in the total amount of $24,540:                                 

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