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did not pay any Federal income tax at the time they filed the
1995 joint return. By February 3, 1997, petitioner and Mr.
Mellen paid in full the Federal income tax due shown in that
return, a penalty, and interest thereon.
Sometime during 1997, an agent of respondent (examining
agent) commenced an examination of the 1995 joint return (respon-
dent’s examination). Sometime after that examination commenced
but before September 8, 1998, the examining agent proposed nine
adjustments (proposed adjustments) to the 1995 joint return,
which included the proposed disallowance of the claimed casualty
loss deduction of $30,930. As grounds for that proposed disal-
lowance, the examining agent concluded that if the alleged
casualty occurred at all, it occurred during 1994. Sometime
after the examining agent proposed those adjustments but before
September 8, 1998, petitioner and Mr. Mellen disagreed with the
proposed adjustments and requested and had a conference with the
Internal Revenue Service (IRS) Appeals Office. During that
conference, the IRS Appeals Office sustained only one of the
adjustments proposed by the examining agent, namely, the proposed
disallowance of the claimed casualty loss deduction.
On September 8, 1998, petitioner and Mr. Mellen signed Form
870, Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax and Acceptance of Overassessment, in which they
agreed to the disallowance of the claimed casualty loss deduction
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