Norman L. and Catherine J. Forste - Page 16

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          attach certain documents to future tax returns to avoid any                 
          further audits with respect to this issue.  The letter states in            
          pertinent part:                                                             
                    The attached report reflects the information                      
               regarding the taxability or non-taxability of the                      
               $40,000 income from Deloitte & Touche.  We have                        
               received the additional information (court decision)                   
               from Mr. McDonald [petitioners’ representative] that                   
               validates the entries on line 22 of your 1992 Federal                  
               Income Tax return.                                                     
                    We recommended to Mr. McDonald that a copy of the                 
               court decision be attached to each year’s return so as                 
               to avoid a continuous repetition of IRS contact                        
               regarding this issue.                                                  
               In 1996, Mr. Forste received $45,615 from DHS (then Deloitte           
          & Touche).  Petitioners excluded this amount from gross income on           
          their Federal income tax return for 1996.  An attachment to the             
          return states that the amount received from DHS was “Workmens               
          Compensation and non-taxable”.  Petitioners followed respondent’s           
          tax auditor’s advice in the February 12, 1996, letter, and they             
          attached the letter from respondent’s tax auditor, their petition           
          to the Tax Court for that year, and the first page of their 1990            
          return to their 1996 return.10                                              
               Respondent commenced an examination of petitioners’ 1996               
          return at some point after July 22, 1998.  He subsequently issued           
          a notice of deficiency to petitioners for 1996 in which he                  

               10The parties stipulated a copy of petitioners’ joint                  
          Federal income tax return for 1996.  The copy of the return in              
          the record does not have attached the Tax Court decision for                
          petitioners’ 1990 taxable year.                                             





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