Gary C. and Maru E. Johansen - Page 6

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               By letter dated April 1, 2005, Mr. Kapp, on behalf of                  
          petitioners, sent to respondent a “qualified offer” pursuant to             
          section 7430(g), in which petitioners offered to settle the 2002            
          deficiency for $500.                                                        
               On April 8, 2005, petitioners filed a petition with the                
          Court, challenging respondent’s determinations in the notice of             
          deficiency.  Shortly thereafter, petitioners received from the              
          Appeals Office a letter dated May 12, 2005, in which an Appeals             
          officer noted that petitioners “did not have the opportunity to             
          present documents, books, records” to support the deductions                
          claimed on their return.                                                    
               On February 6, 2006, the parties settled all of the disputed           
          tax adjustments, and the terms of the settlement were read into             
          the record by respondent.  Petitioners subsequently filed their             
          motion, in which they seek to recover the fees for services                 
          performed by Mr. Kapp and his accounting firm.  Concurrently with           
          the motion, the parties filed with the Court a stipulation of               
          settled issues that reflects the resolution of petitioners’                 
          Federal income tax liabilities for 2002.                                    
          Requirements Under Section 7430                                             
               Section 7430(a) authorizes the award of reasonable                     
          litigation costs incurred in a court proceeding that is brought             
          by or against the United States in connection with the                      

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