Bradley M. Cohen and Kathy A. Cohen - Page 6




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          income tax credit for 1996.  As a result of filing the amended              
          return, petitioners received a refund of tax in the amount of               
          $3,030.                                                                     
          Procedural Matters                                                          
               The examination of petitioners’ income tax liability for               
          1996 arose out of an examination of NHIL’s employment tax                   
          liability.  During the examination, petitioners did not provide             
          any information to respondent’s revenue agent and failed to                 
          produce bank records or documentation in support of their                   
          position.  Petitioners informed Grey, who represented petitioners           
          during the audit, that the records were missing or were not in              
          their possession.                                                           
               The notice of deficiency was sent to petitioners on July 13,           
          2000, shortly prior to expiration of the period of limitations.             
          Third-party records received pursuant to summonses for various              
          bank accounts were received by the IRS subsequent to the notice             
          of deficiency and disclosed additional bank deposit income.                 
          Respondent then amended his answer to allege an increased                   
          deficiency, addition to tax, and penalty.                                   
               On July 12, 2001, petitioners answered respondent’s                    
          interrogatories and request for admissions.  The interrogatories            
          specifically asked petitioners to identify any nontaxable sources           
          of the deposits made into the Nationwide account, the Cohen                 
          account, or the NHIL account.  Petitioners responded that they              






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