M. K. and J. C. H. - Page 3




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         17, 1996, respondent filed a proof of claim in petitioners’                  
         bankruptcy proceeding.  Respondent’s claim consisted of estimated            
         liabilities because petitioners had not filed tax returns.  On               
         June 16, 1997, the bankruptcy court compelled petitioners to file            
         Federal income tax returns for their 1993, 1994, and 1995 tax                
         years.  The returns were to be filed within 3 years of the date              
         of petitioners’ bankruptcy petition.                                         
              On the basis of the tax liability petitioners reported,                 
         respondent filed his first, second, and third amendments to the              
         proof of claim on or about December 16, 1997, March 10, 1998, and            
         February 9, 1999, respectively.  On February 9, 1999,                        
         respondent’s unsecured priority claims were as follows:                      
                              Unsecured Priority Claims                               
                   Year    Tax Due    Interest to Bankruptcy Petition Date            
                   1993    $41,517               $9,123.09                            
                   1994      2,163               258.80                               
                   1995       1             -0-                                       
                   1996      2,191               -0-                                  
         At the same time, respondent’s unsecured general claims totaled              
         $20,090.                                                                     
              On October 5, 1999, petitioners’ Fourth Amended Plan of                 
         Reorganization was confirmed by the bankruptcy court.  On or                 
         about June 5, 2000, respondent mailed a statutory notice of                  
         deficiency to petitioners determining income tax deficiencies and            
         additions to tax for their 1993, 1994, and 1995 tax years.  The              
         deficiencies, if approved, would result in the following                     






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