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On July 23, 2002, respondent’s revenue agent mailed a letter
to petitioner Joyce Pendergraft with respect to an examination of
petitioners’ 1999 and 2000 joint individual Federal income tax
returns, which letter included a request for certain books,
records, and documents relating to petitioners’ three trusts and
the sale of petitioners’ residence.
On October 21, 2002, petitioners entered into a closing
agreement with respondent in which agreement petitioners agreed,
in principle, that for 1999 and 2000 the NHUSS Trust, the In God
We Trust, and the RJ Pendergraft Trust would be disregarded for
Federal income tax purposes, that the reported income and
expenses of the three trusts would be collapsed into petitioners’
income and expenses, and that petitioners were liable for the tax
deficiencies for 1999 and 2000 that related to the trusts’ income
and expenses being charged to petitioners. In the above-
referenced October 21, 2002, closing agreement, the parties did
not finalize or specify the specific amounts of the income and
expenses of the trusts that would be charged to petitioners, nor
did the parties specify the amounts of the deficiencies that
would be charged to petitioners.4
4 We note that, in the closing agreement petitioners
entered into with respondent, petitioners appear to have agreed
that they would be liable for penalties relating to the collapse
of the income and expenses of the three trusts into petitioners’
income and expenses. However, in the trial stipulation, the
parties stipulate that petitioners’ liability for these penalties
is still in issue, and the parties have briefed this issue. We
(continued...)
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