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On February 18, 1997, through a sales representative of
South Trust, petitioner made purchases of securities issued by
domestic corporations, totaling $1,399,775, which satisfied the
requirements of section 1042(c)(4) to be “qualified replacement
property”. All but approximately $120,000 of the proceeds was
thus reinvested in qualified replacement property.
On or before April 15, 1997, petitioner timely filed his
1996 Federal tax return (original tax return) but did not report
the sale of stock, in any manner, on the tax return. Further,
the original tax return did not include a statement of election
pursuant to section 1042, a statement from the company consenting
to the application of sections 4978 and 4979A, or a statement of
petitioner’s purchase of qualified replacement property with the
proceeds of the stock sale to the ESOP. Petitioner did not
request an extension of time to file the original tax return.
On January 12, 1999, after respondent began an examination
of the original tax return with regard to the stock sale,
petitioner signed a Form 2848, Power of Attorney and Declaration
of Representative, appointing Mr. Midcap and certain associates
from Mr. Midcap’s practice as petitioner’s representatives with
regard to the examination.
On November 28, 2000, respondent received petitioner’s
amended Federal tax return for 1996 (amended tax return). On the
amended tax return, petitioner reported the portion of the gain
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