Christopher Kiley - Page 12

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               As previously stated (see supra B), by letter dated May 21,            
          1999, respondent‘s Chief of the Examination Branch in the Ogden,            
          Utah Service Center advised petitioner and his wife that “the               
          information you sent”; i.e., their Form 1040 for 1998, “is                  
          frivolous and your position has no basis in law.”  Also as                  
          previously stated (see supra B), by letter dated June 19, 1999,             
          petitioner replied to the foregoing letter.  Although                       
          petitioner’s letter was much lengthier than his previously                  
          described letter dated January 7, 2000 (see supra A), the tenor             
          of the two letters was the same.                                            
               By notice dated February 25, 2000, respondent determined a             
          deficiency in the Federal income tax of petitioner and his wife             
          for 1998 in the amount of $16,174, together with an accuracy-               
          related penalty under section 6662(a) and (b)(1) in the amount of           
          $3,830.06.7  No petition for redetermination was filed with the             
          Court.  See sec. 6213(a).  Accordingly, on August 7, 2000,                  

               7  The deficiency in income tax was based on respondent’s              
          determination that petitioner and his wife received but failed to           
          report: (1) Wages in the amount of $14,466 from Lucky Stores, and           
          (2) a capital gain in the amount of $83,550.  In determining the            
          deficiency, it would appear that respondent failed to consider              
          the Form W-2 issued by Palace Station Hotel and Casino reporting            
          the payment of wages to petitioner in the amount of $18,823.15,             
          as discussed in the text.  If this were the case, the deficiency            
          in income tax and the accuracy-related penalty were understated.            
               We note that respondent has credited petitioner and his wife           
          for the amount withheld from wages insofar as their ultimate tax            
          liability is concerned.  However, we note further that the                  
          determination of a statutory deficiency does not take such amount           
          into account.  See sec. 6211(b)(1).                                         

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