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approval or the receipt of a Form 4361 from Mr. Vigil. The IRS
notified Mr. Vigil of the results of its search on June 11, 1996.
In June 1997, respondent notified petitioners that he
proposed an adjustment to their 1994 Federal income tax resulting
from nonpayment of self-employment tax, together with a
negligence penalty. However, in July 1997, respondent sent
petitioners a letter stating that the 1994 examination resulted
in no change to the tax that petitioners reported.
Petitioners filed their joint 2001 Federal income tax return
on February 27, 2004, together with a request for an extension of
time to file their 2001 return (extending the due date from April
15, 2002, to October 15, 2002). Petitioners signed both the 2001
Form 1040, U.S. Individual Income Tax Return, and the Form 2688,
Application for Additional Extension of Time To File U.S.
Individual Income Tax Return, on February 25, 2004.
Respondent determined a $12,118 deficiency in petitioners’
2001 income tax. Upon examination, respondent disallowed the
following amounts claimed as deductions on Mr. Vigil’s Schedule
C: $3,463 for meals and entertainment expenses; $12,347 for
travel expenses; $7,862 for supplies; and $17,199 for car and
truck expenses. Respondent determined that Mr. Vigil was not
exempt from self-employment tax under section 1402(e) and that
petitioners were liable for both an addition to tax under section
6651(a)(1) for failing to file their 2001 tax return on time and
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