John J. Petito - Page 13




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          years 1990, 1991 and 1992.  It was only after the Court’s opinion           
          in Petito v. Commissioner, T.C. Memo. 2000-363, on petitioner’s             
          motion for reconsideration, that petitioner and respondent’s                
          counsel apparently became aware that in fact the IRS had treated            
          Petito Corp. as a C corporation in its internal records.  It was            
          at this point that respondent conceded all adjustments in this              
          case, recognizing that his determination and position were                  
          inconsistent with his own administrative records.3                          
               Respondent failed to explain to the Court why he proceeded             
          as he did in this case and why no one in the IRS discovered at              
          some earlier time that respondent’s determination in the notice             
          of deficiency and position taken in this litigation were                    
          inconsistent with respondent’s internal records.  Considering the           
          ease with which respondent could have determined Petito Corp.’s             
          correct status, it was unreasonable for respondent to issue the             
          disputed notice of deficiency to petitioner and to litigate this            
          case.                                                                       
          B.  Unreasonable Protraction of the Proceedings                             
               Respondent contends that petitioner should not be awarded              


               3  Respondent indicated that consistent treatment of Petito            
          Corp. with the internal documents would require respondent to               
          proceed directly against the corporation.  Respondent also                  
          acknowledged that the normal 3-year period of limitations under             
          sec. 6501(a) for making an assessment against Petito Corp. has              
          expired.                                                                    







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