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Ms. Pearson’s examination of petitioners’ returns was
briefly interrupted for work-related training from March 16,
1992, to April 17, 1992. She also worked on other examinations
from April 17, 1992, to June 13, 1992. A closing conference with
petitioner, Ms. Reid, and petitioners’ son was held on June 17,
1992. The examination was closed with the issuance of the
revenue agent’s report, dated June 26, 1992 (RAR).
Numerous adjustments are contained in the RAR. The cost of
goods sold claimed for each year is reduced, as are a number of
deductions. Deficiencies of $14,694 and $16,083 for the years
1989 and 1990, respectively, are proposed in the RAR.
By Report Transmittal dated July 6, 1992, (the T-Letter) the
RAR was forwarded for review. In the T-Letter, Ms. Pearson
recommended that an inadequate records notice be issued to the
petitioners because petitioners’ books and records were not
sufficiently detailed. According to the T-Letter, business
expenses could not be distinguished from personal expenses
because petitioners kept business and personal records in one set
of books. The T-Letter also notes that petitioners did not
maintain a log to verify business use of an automobile.
Petitioners did not agree with the proposed adjustments to
their income tax returns and, on August 5, 1992, their authorized
representative, C. Ray Hunter (Mr. Hunter), requested a hearing
with an Appeals Officer. By letter dated September 10, 1992,
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