Peter M. and Susan L. Hoffman - Page 4

               Respondent no longer has copies of any of the six                      
          partnerships’ Federal tax returns for 1990, and the                         
          Schedules K-1, Partner’s Share of Income, Credits, Deductions,              
          etc., are not in the record.  Respondent has a copy of Cinema’s             
          1990 Form 1120S, U.S. Income Tax Return for an S Corporation.               
               The original return reported gross income from wages,                  
          interest, a State tax refund, miscellaneous income, and rental              
          income totaling $3,019,317.  The original return also reported              
          long-term capital gain of $5,304 from the partnerships and                  
          section 1231 gain of $76,070 from the S corporation.  The record            
          does not indicate the gross income of the six partnerships.                 
               On September 8, 1997, petitioners filed an amended 1990                
          Federal income tax return (the amended return) that was prepared            
          by their accountant.1  The amended return shows an additional tax           
          liability of $218,152, without statutory additions, which was               
          based upon $779,114 of gross income that was omitted from the               
          original return.2  The amount omitted from the original return              
          relates to cancellation of indebtedness income that petitioners             
          did not report.                                                             

               1 Respondent asserted in the answer that the amended return            
          was filed pursuant to a plea agreement that settled a criminal              
          case brought against Mr. Hoffman.  See United States v. Hoffman,            
          No. CR 96-1144(A)-JGD (C.D. Cal.) (the criminal case).                      
          Respondent later conceded that the amended return was not filed             
          as a condition to the plea agreement.                                       
               2 Respondent never issued a notice of deficiency to                    
          petitioners for 1990.                                                       

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