E. Carolyn Mellen - Page 9




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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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