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selected for examination. On November 5, 1997, respondent mailed
to petitioners a letter containing a report of proposed
adjustments. In that report, respondent determined that
petitioners were liable for the 10-percent additional tax for
making a premature withdrawal from their retirement plan. On
December 2, 1997, petitioners sent respondent a letter detailing
petitioner William C. Eberhardt, Jr.'s (Mr. Eberhardt) disability
and relying on that condition as authorization to withdraw
retirement funds without penalty.
On December 9, 1997, respondent notified petitioners that
additional issues had been identified for audit with regard to
petitioners' 1995 tax year. The letter contained a Form 4564,
Information Document Request (IDR), which solicited documentation
pertaining to petitioners' medical expenses, casualty or theft
loss, and income and expense items on petitioners' Schedule C,
Profit or Loss From Business, as well as additional information
pertaining to Mr. Eberhardt's disability.
On January 22, 1998, petitioners sent respondent a letter
containing additional documentation regarding the issue of Mr.
Eberhardt's disability. Also enclosed was a copy of a letter
dated May 6, 1996, in which petitioners were notified that the
examination of their 1993 return showed that no change was
necessary in the tax reported in that return. Petitioners did
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