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Petitioners filed delinquent income tax returns for 1993 and
1994. The 1993 return was filed on December 19, 1996, and the
1994 return was filed on June 10, 1996. Petitioners' 1995 return
was timely filed. Attached to each return was a Schedule A and
Schedules C. Petitioners reported adjusted gross income of
$18,731, $16,756, and $17,353 for 1993, 1994, and 1995,
respectively.
A. Examination of Petitioners' Tax Returns
In a letter dated November 1, 1996,2 petitioners were
informed that respondent was proceeding with the examination of
their 1993 tax year, for which a return had not yet been filed.
Additionally, the examination had been expanded to include the
Forms 1040, Individual Income Tax Return, they filed for 1994 and
1995. Forms 4564, Information Document Request (IDRs), were
enclosed with the letter. Because of the audit results of
petitioners' prior years, unreported income and the lack of
substantiation of business deductions were significant areas of
inquiry.
Mr. McCarron (petitioner) met with respondent on December
19, 1996, and presented an original delinquent return for 1993
for filing. Petitioner did not have any documentation used in
2Sec. 7491, which shifts the burden of proof to the
Secretary in certain circumstances, is inapplicable to this case.
See Warbelow's Air Ventures, Inc. v. Commissioner, 118 T.C. 579,
582 n.8 (2002) (sec. 7491 is effective for court proceedings
arising in connection with examinations commencing after July 22,
1998), affd. 80 Fed. Appx. 16 (9th Cir. 2003).
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