Walter A. and Alfreda Kocot - Page 4

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               On June 16, 2003, responding to petitioners’ reporting the             
          same amount--$24,328.70--on both lines 20a and 20b of their 2002            
          return, respondent sent petitioners a proposed change letter                
          (June 16 letter) that reduced line 20b of petitioners’ 2002                 
          return to $20,678.  Respondent reduced the amount reported by               
          petitioners on line 20a of their return ($24,328.70) by 15                  
          percent to accurately reflect the taxable portion thereof                   
          ($20,678).  The June 16 letter also corrected the amount claimed            
          by petitioners as their standard deduction (line 38) from $7,850            
          to $9,650, since both petitioners were over 65 years of age in              
          2002.  The 15-percent reduction to the reported amount on line              
          20a ($24,3291), and the increase in petitioners’ standard                   
          deduction ($9,650), resulted in petitioners’ receipt of a refund            
          for taxable year 2002 in the amount of $1,472.81.                           
               After sending the June 16 letter, respondent received                  
          information from the Social Security Administration indicating              
          that petitioners’ total Social Security benefits received for               
          taxable year 2002 were actually $28,622 and not $24,320.70, as              
          petitioners originally reported on line 20a of their 2002 return.           
          Subsequently, on April 5, 2004, respondent sent a second proposed           
          change letter (April 5 letter), which increased petitioners’                
          taxable Social Security benefits received from $20,678 to                   

          1 Rounded to the nearest dollar.                                            

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