Jeanne M. Trent - Page 4

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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             
               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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