Dallas R. Hall - Page 3

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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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