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Artistic Nature and Dana Salazar dba Artistic Nature.” The
petition was later converted to a chapter 7 proceeding.
On February 1, 2001, respondent filed a proof of claim with
the bankruptcy court, which respondent later amended. On
respondent’s last amendment to the proof of claim, filed on
September 27, 2003, respondent listed a secured claim of
$19,915.40, an unsecured priority claim of $43,673.45, and an
unsecured general claim of $8,850.74. The secured claim related
to a lien respondent had previously filed with respect to
petitioners’ 1997 and 1998 income tax liabilities, and it
included penalties and interest. The unsecured priority claim
also included interest. Petitioners, while represented by
counsel, did not file an objection to respondent’s claims. On
July 25, 2002, petitioners received a discharge of debtor from
all dischargeable debts. On August 22, 2005, the bankruptcy
trustee disbursed $17,834.51 to respondent. The bankruptcy case
was closed on March 30, 2006.
During the 2000, 2001, and 2002 tax years, petitioners
allowed withholdings from income to exceed their income tax
liabilities, which created overpayments totaling $15,814.91. On
October 2, 2003, respondent applied these overpayments to
petitioners’ 1997 income tax liabilities. On October 6, 2003,
respondent assessed $3,192.34 in interest and an additional
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