Larry J. and Sherilyn Wadsworth - Page 4

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          that petitioners’ amended income tax returns failed to properly             
          report Mr. Wadsworth’s alleged distributive share of the income             
          of Gold Coast.                                                              
               On June 13, 2005, petitioners timely petitioned this Court             
          for a redetermination of the 2001 and 2002 deficiencies.  In                
          their petition, petitioners argued that the notice of deficiency            
          was invalid because:  (1) The notice of deficiency is vague and             
          incomprehensible; and (2) the adjustments at issue are subject to           
          the partnership-level proceedings of sections 6221 through 6233,            
          and respondent therefore lacks authority to assert a deficiency             
          against an individual partner before the issuance of a notice of            
          final partnership administrative adjustment (FPAA).                         
               After receiving an extension of time to file, respondent               
          timely filed his answer to the petition on August 29, 2005.                 
          Paragraph 8 of respondent’s answer consists of detailed                     
          allegations regarding Gold Coast’s income for 2001 and 2002 and             
          Mr. Wadsworth’s involvement in Gold Coast.  Respondent alleges,             
          inter alia, that Mr. Wadsworth was a 50-percent partner in Gold             
          Coast; that Gold Coast had only two partners, both of whom were             
          individuals; that Gold Coast operated a pharmacy that provided              
          medical products and services to eligible beneficiaries of the              
          California Medical Assistance Program; that the California                  
          Department of Health Services (DHS) conducted an audit of Gold              
          Coast’s records for the period from January 1, 2001, through                

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