John M. Mekulsia - Page 9

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               On petitioner’s 1987 individual income tax return, he                  
          claimed a $319 general business credit relating to SGE that he              
          carried forward from his 1985 income tax return.                            
          D.  Respondent’s Examination of SGE for 1985 and 1986                       
               On December 17, 1987, respondent sent a notice of beginning            
          of administrative proceeding (NBAP) to Jay Hoyt, the TMP of SGE.            
          The notice informed the TMP that respondent was beginning an                
          examination of SGE for the 1985 and 1986 tax years.                         
               On July 20, 1988, respondent sent an NBAP to petitioner                
          notifying him that an examination was beginning on SGE for the              
          1985 tax year.  On September 12, 1988, respondent sent petitioner           
          an NBAP relating to SGE for the 1986 tax year.                              
               On February 28, 1989, an examiner with the IRS signed Form             
          4665, Report Transmittal, and Form 4605-A, Examination Changes--            
          Partnerships, Fiduciaries, Small Business Corporations, and                 
          Domestic International Sales Corporations.  Both forms related to           
          the IRS’s examination of SGE for the 1985 tax year.                         
               In the Report Transmittal, the examiner discussed the                  
          difficulties encountered in obtaining SGE’s records from the TMP.           
          The examiner recommended issuing a notice of final partnership              
          administrative adjustment (FPAA) because the lack of adequate               
          records did not allow respondent to perform a normal examination,           
          and the parties were in complete disagreement over the issues.              

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