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joint Federal income tax return for the taxable year 2000 on
which they reported total tax of $2,831,360, total payments of
$2,636,723, and tax due of $194,637 plus an estimated tax penalty
of $1,369, interest due on the unpaid balance of $9,704, and a
penalty for failure to pay of $7,785, for a total amount due of
$213,495. Petitioners failed to remit the amount due with their
tax return. Respondent accepted the tax return as filed and
assessed the amount reported therein. Respondent did not audit
petitioners’ tax return for 2000 and did not send petitioners a
notice of deficiency for 2000.
On March 19, 2002, respondent issued to petitioners a Final
Notice-–Notice of Intent to Levy and Notice of Your Right to a
Hearing with regard to their unpaid tax for 2000. The notice
stated that petitioners owed tax, penalties, and interest
totaling $222,315.34.
On April 18, 2002, petitioners submitted to respondent a
Form 12153, Request for a Collection Due Process Hearing.
Petitioners’ request for an administrative hearing stated in
pertinent part:
The taxpayer has a good track record of paying his
taxes timely in appropriate amounts, as evidenced by
the 1997—1999 tax returns * * *. However, in tax year
2000, the taxpayer had an extraordinary tax liability
($2,831,360) due to his exercise of several incentive
and nonqualified stock options and the application of
the AMT rates. The taxpayer was able to pay $2,636,723
of the tax liability, but, unfortunately, the value of
the stock received plummeted before year-end 2000 and
is now essentially worthless. Thus, the remaining tax
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