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Respondent subsequently commenced an audit of petitioner’s
and S. Trent’s 1994 Federal income tax return. On August 22,
1997, respondent sent to petitioner and to S. Trent a notice of
deficiency for 1994 determining a deficiency in the amount of
$23,046. Respondent disallowed Paradise’s deductions for
advertising, labor, and other expenses. Respondent also
disallowed the offset for cost of goods sold. Petitioner timely
filed a petition for redetermination of the deficiency with the
Court.
Before July 13, 1998, petitioner met with Appeals Officer
Wayne McClellan (McClellan) in an effort to settle the dispute.
Prior to petitioner’s meeting with McClellan, a clerk in the
Appeals Office suggested that petitioner might ask about
“innocent spouse”. At the end of her meeting with McClellan,
petitioner asked whether “innocent spouse” was something for
which she would qualify. McClellan informed her that she was
following the correct steps and the correct procedures and that
then was not the time to raise an innocent spouse defense.
Petitioner was unable to produce original documentation to
substantiate all of the deductions disallowed in the notice of
deficiency. Petitioner subsequently retrieved microfiche copies
of bank statements from the bank. Petitioner also retrieved
copies of receipts from Paradise’s suppliers. Respondent
accepted petitioner’s substantiation for advertising and rent
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