Elizabeth Lai - Page 7

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          Examination of Petitioner’s Income Tax Returns                              
               Petitioner’s 1999 income tax return was selected by                    
          respondent for examination.  Revenue Agent Daren Cedergreen                 
          (Agent Cedergreen) conducted the examination, which began in                
               On February 14, 2002, Agent Cedergreen met with petitioner             
          and Mr. Nguyen, who agreed to represent petitioner during the               
          examination, at La Belle Vie.  During that meeting, petitioner              
          stated, inter alia, that all her income came from La Belle Vie,             
          that she did not have a safe deposit box, and that she did not              
          receive any loans during 1999.                                              
               On September 23, 2002, Agent Cedergreen met again with                 
          petitioner and Mr. Nguyen at Mr. Nguyen’s office.  During that              
          meeting, petitioner stated that the deposits in her Key Bank                
          accounts represented loan proceeds and loan repayments from                 
          family and friends in the United States and Vietnam.  Petitioner            
          also said that she maintained a safe deposit box at Key Bank.               
               At the meeting, petitioner showed Agent Cedergreen seven               
          letters (the first set of letters) that she believed were                   
          authored by relatives and acquaintances.  The letters, many of              
          which are written in Vietnamese, discuss loans between petitioner           
          and her friends and family made during late 1998 and 1999.                  
               During the meeting of September 23, 2002, petitioner filled            
          out a questionnaire indicating that her routine cash expenditures           

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