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The Commissioner selected petitioner’s 1994 tax return for
examination and mailed to petitioner a letter scheduling an
initial appointment for the examination. Petitioner did not
appear for that appointment. Subsequently, on April 24, 1996,
the Commissioner issued to petitioner a 30-day letter disallowing
all amounts claimed for “bad debts”, “interest”, “travel”, “meals
and entertainment”, and “other expenses”,1 and determining that
petitioner was liable for an accuracy-related penalty for
negligence and an addition to tax for failure to file timely.
The 30-day letter provided generally that the expenses were
disallowed because petitioner had not established that: (1) He
had paid them and (2) they were ordinary and necessary business
expenses. The 30-day letter informed petitioner that he could
discuss these changes on May 13, 1996, with a representative of
the Internal Revenue Service (IRS).
At the scheduled time, petitioner met with a tax auditor
named Zora Christian (Christian). Christian requested
substantiation for the disallowed deductions. Petitioner
informed her that he did not have with him any of the requested
substantiation for the bad debt or interest expenses. Christian
delivered to petitioner an information document request (IDR)
specifically requesting that information. The IDR set a reply
1 In all, respondent disallowed $97,330 of the deductions
which petitioner claimed on Schedule C.
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