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Petitioners responded with a letter dated July 21, 1999,
communicating that they had been assured by their legal counsel
and tax accountant that their trust was “NOT an ‘abusive trust’
as described in your material.” They indicated that they would
not be filing an amended return and then proceeded with several
pages questioning the authority of the IRS to request
documentation with respect to the trust. On August 10, 1999, the
IRS sent letters to petitioners notifying that their Forms 1040
and HGAMC’s Forms 1041 for 1996 and 1997 had been selected for
examination. Petitioners were asked to meet with the examining
agent on September 7, 1999, and to provide books, records, and
documents related to the returns. Neither petitioner responded
to the letters or attended the requested meeting.
David Morgason (Mr. Morgason) was the principal IRS employee
responsible for conducting the examination of petitioners’
returns. When petitioners failed to provide any information,
Mr. Morgason sought to obtain records from third parties through
issuance of administrative summonses. One or more such summons
was sent to Lebanon Citizens National Bank, and Mr. Richardson
responded upon learning of the matter with two letters dated
September 22, 1999, one to the IRS and one to the bank. The
letter to the IRS asserted that the agent had violated various
laws and policies and threatened legal action. The letter to the
bank directed the bank not to disclose any of the information
requested by summons until presented with a court order to do so.
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