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activity, (4) excess Schedule E depreciation deductions of
$15,317, and (5) computational adjustments related to personal
exemptions.
1993 and 1994 Individual Returns
On December 2, 1996, respondent issued a letter (no change
letter) in connection with the audit of petitioner’s 1993 and
1994 fiduciary returns, which stated:
Since there was no material change in the tax you
reported, we are accepting your return with the changes
noted. You can contest these changes only when the
result changes the amount of your income tax. Changes
that affect carryovers to future years or periods
cannot be protested at this time because we are not
changing the tax reported on your return. If
additional tax is proposed for a later year based on an
adjustment of a carryover reflected in this report, you
can contest the issue at that time.
On November 19, 1997, respondent issued a notice of
deficiency (1993/1994 notice) to petitioner determining
deficiencies, an addition (1993 only), and penalties for the
calendar years 1993 and 1994. After concessions,6 respondent has
continued to assert adjustments for the following items: (1)
5(...continued)
$35,000 of the amount petitioner wrongly claimed as a cost of
goods sold.
6 Under the assumption that petitioner would not be entitled
to exclude the United Ready Mixed settlement proceeds from income
in 1992 or deduct the payment made to petitioner’s attorney’s
trust account in 1992, respondent conceded that in 1993
petitioner paid to Lurie & Zepeda and was entitled to deduct from
gross income in arriving at adjusted gross income under sec. 162
$200,000 in legal fees. Respondent also conceded that petitioner
was not subject to tax on $642,698 and $114,839 of deposits made
to the living trust in 1993 and 1994, respectively.
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