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documentation had been submitted during the course of the
conference with the agent’s supervisor.
On September 14, 1988, respondent sent a notice of
deficiency to petitioner at petitioner’s last known address in
Romoland, California. In the notice, respondent determined a
deficiency in petitioner’s income tax for 1985 in the amount of
$9,423. The deficiency was attributable in large part to the
complete disallowance of petitioner’s Schedule C deductions in
the amount of $36,145. In the notice, respondent also determined
additions to tax for negligence under section 6653(a)(1) and (2)
and for substantial understatement of liability under section
6661.
Petitioner received the notice of deficiency for 1985.
However, petitioner did not file a petition with this Court
contesting respondent’s deficiency determinations. Accordingly,
on March 20, 1989, respondent assessed the deficiency in income
tax ($9,423) and the additions to tax as determined in the
notice.
B. Examination of Petitioner’s 1986 Return
On July 13, 1987, petitioner filed his Federal income tax
return (Form 1040) for 1986. On the return, petitioner listed
his address as in Santa Barbara, California. Petitioner attached
to his return a Schedule C, Profit or Loss From Business or
Profession. On the Schedule C, petitioner claimed total
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