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The letter stated that the proposed inclusion of
cancellation of debt income was the result of third-party
information, specifically referencing the Form 1099-C received
from Guild. The letter set forth in detail the procedures for
petitioner to follow should he choose to contest the proposed
changes. The letter also stated that petitioner’s response was
required by February 12, 1998, and that if petitioner failed to
respond by February 12, 1998, respondent would presume that the
proposed changes were correct and issue petitioner a notice of
deficiency.
Petitioner retained the law firm of Brouse McDowell on March
27, 1998. No response to the 30-day letter, however, was
submitted to respondent. On April 22, 1998, respondent issued a
notice of deficiency to petitioner based on the changes proposed
in the 30–day letter. On July 23, 1998, Jeffrey W. Leonard (Mr.
Leonard), an attorney with Brouse McDowell, filed a petition on
behalf of petitioner with this Court. The petition alleged that
petitioner was insolvent at the time the debt was canceled and,
therefore, no income was recognized. See sec. 108.
Petitioner never requested an Appeals Office conference
before the filing of his petition with the Tax Court. When Mr.
Leonard was offered a conference by Appeals Officer John Mazur
during a telephone conversation on September 17, 1998, the offer
was declined. Instead, Mr. Leonard promised the Appeals officer
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