Talmadge and Reatha Swanagan - Page 3




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               Respondent, through his District Director, commenced an                
          audit of petitioners’ 1994 and 1995 taxable years about June                
          1997.  In connection therewith, the District Director requested             
          certain information; petitioners ultimately provided some, but              
          not all, of this information to the District Director.  The                 
          District Director concluded the audit on July 2, 1998, proposing            
          certain upward adjustments to petitioners’ income.  On that date,           
          the District Director also mailed to petitioners two 30-day                 
          letters (one for 1994 and one for 1995) listing proposed upward             
          adjustments of $5,675 and $12,493 to the respective years’                  
          income.  The 30-day letter invited petitioners to request an                
          administrative appeals conference to discuss these proposed                 
          adjustments, providing: “IF YOU * * * wish a conference with the            
          Regional Office of Appeals [Appeals], YOU MUST LET US KNOW within           
          30 days.” The 30-day letter explained the procedures for                    
          requesting a conference with Appeals.                                       
               Petitioners never requested a conference with Appeals for              
          either year.  Nor did they ever deliver to respondent a written             
          protest as to the District Director’s conclusions set forth in              
          the 30-day letters.                                                         
               On March 19, 1999, respondent issued the notices of                    
          deficiency to petitioners.  As to 1994, respondent determined               
          that petitioners were liable for a $5,383 deficiency and a                  
          $1,070.60 accuracy-related penalty under section 6662(a).  As to            





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