Royce A. Ellis - Page 6

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          the income reported on the Forms 1099-MISC and the income                   
          reported on petitioner’s 2001 return.                                       
               In response, on June 30, 2003, Mr. Townshend mailed a letter           
          to the Ogden Service Center explaining the discrepancies,5 which            
          included a copy of petitioner’s 2001 Schedule C, and a record of            
          petitioner’s 2001 bank deposits with respect to Coastal Builders.           
          The letter also stated petitioner’s bank statements for 2001 were           
          in respondent’s possession and provided Agent Bok’s contact                 
          information.  On August 18, 2003, the Ogden Service Center mailed           
          a CP-2005 Closing Notice for tax year 2001, which stated:                   
                    Thank you for providing us with additional                        
               information about the issue we recently wrote you                      
               about.  We are pleased to tell you that, with your                     
               help, we were able to clear up the differences between                 
               your records and your payers’ records. * * * .                         
                    If you have already received a notice of                          
               deficiency, you may disregard it.  You won’t need to                   
               file a petition with the United States Tax Court to                    
               reconsider the tax you owe.  If you have already filed                 
               a petition, the Office of the District Counsel will                    
               contact you on the final closing of this case.                         
               Although the investigation was closed by the Ogden Service             
          Center, the overall examination of the years at issue continued,            
          and Revenue Agent Byron W. Daniels replaced Agent Bok as the                
          Agent performing the examination.  Using the bank deposits method           
          to reconstruct the income petitioner earned from doing business             

               5 Mr. Townshend explained to the Ogden Service Center that             
          two of the Forms 1099-MISC were inaccurate and the other two were           
          respondent’s replacements containing petitioner’s corrected                 
          earnings information for 2001.                                              

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