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stating that the existence of a reasonable prospect of recovery depends on the facts and circumstances
Summary of this case from Bedrosian v. Comm'rOpinion
Docket No. 3726-73.
1975-12-8
JOHN E. MONTGOMERY AND IRIS E. MONTGOMERY, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
John E. Montgomery, pro se. Roy S. Fischbeck, for the respondent.
John E. Montgomery, pro se. Roy S. Fischbeck, for the respondent.
Petitioner and his brother, as joint venturers doing business as Gulfmont Enterprises, acquired two apartment buildings located on Beach Front Highway in Gulfport, Miss., in April 1969. Both buildings were completely destroyed by ‘Hurricane Camille’ which struck the gulf coast area on Aug. 27, 1969, resulting in a total loss to petitioner and his brother in the amount of $45,882.81. The apartment buildings were insured under two fire and casualty policies in the amount of $22,000 each, covering certain specified losses, including wind damage but excluding losses resulting from floods, tidal waves, water, etc. The insurance carriers denied liability and rejected all claims filed by the owners during 1969 on the ground that the damage was caused by the water forces and was not within the coverage of the insurance policies. Petitioner deduced one-half ($22,941.40) of the total loss on his income tax return for 1969. Subsequently, in 1970 the insurance companies offered to settle petitioner's and his brother's claims for a total of $32,000, which amount was accepted and paid to them in August 1970. Petitioner did not report the insurance recovery on his return for 1970, but instead filed an amended return for 1969 wherein he decreased the previously reported casualty loss by the amount of his insurance recovery. Held, the insurance recovery received by petitioner constituted taxable income for 1970.
At the time they purchased the apartment buildings, petitioner and his brother assumed payment of two notes having an unpaid balance of $32,501.36 secured by deeds of trust. In June 1970, the holders of the notes agreed to accept $27,500 in full payment of the then $31,000 balance owed on the notes. Held, the amount by which the debt on the apartment buildings was reduced taxable income in 1970.
BRUCE. Judge:
Respondent determined a deficiency of $3,737.91 in petitioners' Federal income tax for the year 1970. Two issues are presented for decision: (1) Whether insurance compensation received by petitioners in 1970 for a casualty loss which was deducted in 1969 is includable in petitioners' income for 1970; and (2) whether petitioners must recognize as income for 1970 the portion of a debt which was discharged during that year.
FINDINGS OF FACT
Some of the facts have been stipulated and the stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
John E. Montgomery and Iris E. Montgomery are husband and wife who resided in Long Beach, Miss., at all times relevant to this case. Petitioners filed a joint Federal income tax return for the years 1969 and 1970 with the District Director of Internal Revenue, Jackson, Miss. Petitioners reported their income on a calendar year basis. When used hereinafter, ‘petitioner’ will refer to John E. Montgomery.
On January 8, 1969, petitioner and his brother, Homer T. Montgomery (Homer), coequal joint venturers doing business as Gulfmont Enterprises, purchased two apartment buildings from John Wesley Ward, Jr., for $57,000. Of the total purchase price, $12,000 thereof was allocated to the cost of the land and $45,600 to the cost of the buildings. The buildings each contained four apartment units and were situated on Beach Front Highway in Gulfport, Miss.
As part of the $57,600 purchase price, petitioner and Homer assumed and agreed to pay two notes with an unpaid balance of $32,501.36 which were secured by two first deeds of trust on the property. Julian and Cornelia Kolden were the beneficiaries of these two deeds of trust. Additionally, petitioner and Homer gave the seller, Ward, a note for $7,000 secured by a second deed of trust on the property.
After the purchase of the buildings, the joint venturers repaired and furnished the buildings and rented the separate units until August 17, 1969.
Late in the evening of August 17, 1969, a storm commonly known as ‘Hurricane Camille’ struck the gulf coast area causing severe damage. High winds well in excess of 100 miles per hour and a wave wash or tidal surge which inundated a portion of the coast area ravaged the Gulfport-Biloxi vicinity. Petitioner's personal residence was badly damaged (the amount or year of this loss is not at issue here) and petitioner's apartment buildings were completely, leveled to the ground. The amount of the loss suffered by petitioner and Homer with respect to the apartment buildings was $45,882.81.
Petitioner and Homer had insured the buildings and their contents under two standard fire and casualty policies. Each policy, issued by Cherokee Insurance Co. (Cherokee) and Lititz Mutual Insurance Co. (Lititz), respectively, provided protection against certain specified losses including wind damage up to a maximum amount of $22,000. Among the hazards excluded from coverage were losses resulting from, contributed to, or aggravated by flood, surface water, waves, tidal water, tidal wave, or spray.
Petitioner and Homer filed claims with Cherokee and Lititz seeking reimbursement for their hurricane loss. Both insurers denied liability after investigations by their respective adjusters disclosed that the apartments were in the area that had been flooded by the tidal wave. The insurers claimed that the destruction had been caused by the force of surface waters, a peril excluded from coverage. The apartment buildings were situated in close proximity to the beach and were between the gulf waters and the ‘trash line’ — a line of debris indicating the extent of the flooding caused by the tidal wave. Buildings and houses situated north of the ‘trash line’ were not as severely damaged as were those structures in the inundated area. The depth that the water had reached in the inundated area could be determined by high water markings clearly visible on trees and structures that had withstood the force of the water. The conclusion that petitioner's property had been damaged by water forces was confirmed by the examination of an engineer, employed by Lititz, who specialized in determining the origin and extent of structural damage after such disasters.
Prior to December 31, 1969, petitioner and representatives of the insurers had discussed the settlement of petitioner's claims for their ‘nuisance value.’ However, as of the last day of the year, neither company had made an offer of settlement and both continued to deny liability. Also prior to the end of the year, petitioner consulted a local attorney about his insurance claims and discussed the possibility of bringing suit against Cherokee and Lititz.
On his 1969 Federal income tax return, filed January 26, 1970, petitioner deducted as a business casualty loss his one-half share of the total Gulfmont Enterprises loss, or $22,941.40. Petitioner provided the following explanation of the loss on his return: ‘No insurance received; offer to settle withdrawn by company; lawsuit probably (sic) necessary to make any recovery.’
Petitioner paid no income tax in 1969 since his losses greatly exceeded his income. Application was made for a refund of taxes paid in prior years based on a carryback of the excess losses for 1969. Petitioner's application was later approved and a refund granted.
During January of 1970, the insurance adjuster for Cherokee met with petitioner and his attorney. At that meeting the adjuster indicated a willingness to settle petitioner's claim. On February 17, 1970, Cherokee offered to settle petitioner's claim for $14,300 and in June increased the offer to $15,500. Petitioner accepted the latter offer. By August of 1970, petitioner and Homer had received checks from the two insurance companies totaling $32,000.
On June 29, 1970, Julian and Cornelia Kolden agreed to accept the sum of $27,500 as full payment of the balance of $31,000 owed on the two notes secured by the first deeds of trust on the property. This agreement was reached notwithstanding the fact that a ‘loss payable clause’ in the insurance policies entitled the Koldens to the full amount due. Petitioner and Homer paid the Koldens the $27,500 and used the remainder of the insurance proceeds to satisfy debts incurred in furnishing the apartments.
Petitioner's 1969 tax return was selected for audit by respondent. The examining agent, Eugene Boon (Boon), met with petitioner in June or July of 1970 to review the return. Petitioner knew at that time of his insurance recovery and agreed with Boon that his one-half share of the proceeds, $16,000, would have to be reflected as an item of income since that amount had previously been deducted. Agent Boon's report of audit indicated ‘No Change’ was necessary to petitioner's 1969 return.
On April 13, 1971, petitioners filed a joint income tax return for 1970. Petitioners did not report the $16,000 insurance recovery as income for that year. Instead, petitioners on the same date filed an amended return, Form 1040X, for the year 1969, and decreased the previously reported business casualty loss by $16,000. Petitioner provided the following explanation on the amended return;
Hurricane ‘Camille’ destroyed all assets owned by ‘Gulfmont Enterprises' (A joint venture) except the vacant lot left and the small bank account balance. When our 1969 income tax return was filed, along with a Form 1045, Tentative Carryback Refund, we had been told by the companies having insurance policies on our ‘Gulfmont Apartment’ buildings that they were not liable and would make no payment to us under the policies. We therefore reflected the full amount of our ‘Gulfmont’ casualty loss on our tax return for 1969, or $45,882.81, which was divided equally between the joint venturers, John E. Montgomery and Homer T. Montgomery, or $22,941.40 each. This loss plus the casualty loss relating to my personal residence resulted in the large Net Operating Loss Carryback which appeared on Form 1045, filed with the 1969 income tax return.
In August, 1970, after months of wrangling and threatening lawsuits and accumulating and presenting photographic and documentary evidence, the insurance companies settled our claims against them without our going to trial. We received a gross amount of $32,000 from the two companies all of which was taken by our creditors who had loss-payable clauses in the insurance contracts. These payments to them resulted in a reduction the amount of the loss of each joint-venturer by $16,000 to $6,941.40. This change in the reported loss on the 1969 income tax return resulted in a reduction of the net operating loss carryback to 1966 in the amount of $16,000, and the net operating loss carryback which was previously reported as $17,050.64 was reduced to $1,050.64. This change results in my having to pay back $1,574.00 of the refund relating to 1966 and all of the refund relating to 1967, $1,090.72. Corrected Form 1045 is attached. The adjustment as follows:
+---------------------------------------+ ¦Adjustment to 1969 income tax return ¦ +---------------------------------------¦ ¦ ¦ ¦ ¦ ¦ +---------+---------+---------+---------¦ ¦ ¦ ¦ ¦ ¦ +---------------------------------------+
1969 return Adjustment 1969 amended Casualty loss—“Gulfmont” $45,882.81 - $32,000 $13,882.81 50% J. E. Montgomery 22,941.40 - 16,000 6,941.40 50% H. T. Montgomery 22,941.41 - 16,000 6,941.41 45,882.81 32,000 13,882.81
Petitioner computed the tax due as a result of this adjustment as $2,664.72. Petitioner enclosed with the amended return a check for $1,949.78 and requested that the overpayment of $714.94 shown on his 1970 return be credited to his account for 1969. Respondent has retained these funds and credited the total, $2,664.72, toward the deficiency asserted for 1970.
Petitioner did not file with his 1970 return a consent pursuant to section 108
to adjust the basis of his property and, thereby, exclude from 1970 income the portion of his debt which was discharged by the Koldens.
All statutory references are to the Internal Revenue Code of 1954, as amended.
Petitioner's 1970 Federal income tax return and amended 1969 return were audited by respondent in 1972. Agent Boon conducted the examinations. Agent Boon concluded that petitioner's use of an amended return to reduce his 1969 casualty loss properly reflected the receipt of the insurance compensation. Accordingly Agent Boon's report of audit indicated ‘No Change’ was necessary to the amended 1969 return. As to the 1970 return, a deficiency of $310.79 was proposed and that amount, plus interest, was paid by petitioner.
Agent Boon's audit of petitioner's 1970 and amended 1969 returns was reviewed for mathematical and technical errors by personnel in the District Director's office. The review personnel determined that the insurance recovery had been incorrectly reported and erroneously approved by Agent Boon. Consequently, Agent Boon received a ‘Reviewer's Correction Memorandum’ informing him that pursuant to section 1.165-1(d)(2)(iii), Income Tax Regs., the insurance recovery would have to be reported as income in the year of receipt, 1970, and that the use of an amended return to recompute the tax for 1969 was improper under the circumstances. Agent Boon notified petitioner of this proposed deficiency sometime in late October of 1972. Petitioner disagreed with this proposal and refused to pay the additional tax.
By letter dated January 3, 1973, respondent requested that petitioner execute Form 872, Consent Fixing Period of Limitation Upon Assessment of Income Tax, so as to extend the statute of limitations for the taxable year 1969. Petitioner refused to execute the document and on February 23, 1973, respondent issued to petitioner a statutory notice of deficiency for the year 1970. A deficiency was never determined for 1969.
Petitioner filed a ‘Protest’ with the District Director in late January 1973 setting forth matters relevant to the two issues at bar. A portion of the ‘Protest’ stated as follows:
Review of the chronology of facts related hereinabove will show that I filed my income tax return for 1969 on January 26, 1970. As of that date, I did not know that we had any ‘reasonable prospect of recovery’ of insurance proceeds, since the representatives of the insurance companies had stated to me and others who had similar losses due to ‘Camille’ that they policies did not cover ‘damages caused by rising water.’
Petitioner closed his ‘Protest’ by requesting that his case be transferred to the Appellate Division of the Regional Commissioner's office for an oral hearing. Petitioner was not, however, afforded a formal conference at the district or appellate level.
OPINION
Section 165(a) permits a taxpayer to deduct ‘any loss sustained during the taxable year and not compensated for by insurance or otherwise.’ A loss is sustained, within the meaning of section 165(a), in the year identifiable events evidence a closed and completed transaction. Sec. 1.165-1(d)(1), Income Tax Regs.
Whether a casualty loss has been sustained in the year of the casualty often turns on the taxpayer's prospects of receiving future reimbursement. If, during the tax year of the casualty, there exists a claim for reimbursement for which there is a reasonable prospect of recovery, no portion of the loss is sustained until it can be ascertained with reasonable certainty whether or not such reimbursement will be received. Sec. 1.165-1(d) (2)(i), Income Tax Regs.; see Louis Gale, 41 T.C. 269 (1963). On the other hand, if no reasonable expectation of recovery exists as of the last day of the tax year in which the casualty occurred, the taxpayer is deemed to have sustained the loss in the year of the casualty.
Sec. 1.165-1(d), Income Tax Regs., provides in part:(d) Year of deduction. (1) A loss shall be allowed as a deduction under section 165(a) only for the taxable year in which the loss is sustained. For this purpose, a loss shall be treated as sustained during the taxable year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable year. * * *(2)(i) If a casualty or other event occurs which may result in a loss and, in the year of such casualty or event, there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, no portion of the loss with respect to which reimbursement may be received is sustained for purposes of section 165, until it can be ascertained with reasonable certainty whether or not such reimbursement will be received. Whether a reasonable prospect of recovery exists with respect to a claim for reimbursement of a loss is a question of fact to be determined upon an examination of all facts and circumstances. Whether or not such reimbursement will be received may be ascertained with reasonable certainty, for example, by a settlement of the claim, by an adjudication of the claim, or by an abandonment of the claim. When a taxpayer claims that the taxable year in which a loss is sustained is fixed by his abandonment of the claim for reimbursement, he must be able to produce objective evidence of his having abandoned the claim, such as the execution of a release.(ii) If in the year of the casualty or other event a portion of the loss is not covered by a claim for reimbursement with respect to which there is a reasonable prospect of recovery, then such portion of the loss is sustained during the taxable year in which the casualty or other event occurs. * * *(iii) If the taxpayer deducted a loss in accordance with the provisions of this paragraph and in a subsequent taxable year receives reimbursement for such loss, he does not recompute the tax for the taxable year n which the deduction was taken but includes the amount of such reimbursement in his gross income for the taxable year in which received, subject to the provisions of section 111, relating to recovery of amounts previously deducted.
The controversy here relates to the year in which petitioner must report his insurance proceeds. Respondent contends the recovery is income in 1970 while petitioner urges the proceeds must be reflected in the computation of tax for 1969. Both parties claim that section 1.165-1(d)(2) of the regulations, or specific provisions thereof, support their respective positions. We have previously examined this regulation and found it in substantial accord with prior judicial decisions. Louis Gale, supra. Since petitioner has neither pleaded nor argued that the loss was sustained and allowable in a year other than 1969, we confine our decision to whether the law as interpreted in the regulations permits petitioner to report the insurance recovery by amending his 1969 return.
Respondent contends that petitioner properly deducted his loss in 1969 and must report the subsequent recovery as income in the year of receipt, 1970. In support of this contention respondent relies on the ‘tax benefit rule’ which, with regard to casualty losses, is expressed in section 1.165-1(d)(2)(iii), Income Tax Regs. That rule provides that if an amount deducted from gross income is recovered in a subsequent tax year, the recovery is income in the year of receipt to the extent the prior deduction resulted in a tax benefit.
Petitioner argues that his recovery of $16,000 in 1970 proves he had a reasonable prospect of recovering that mount in the year 1969. Because section 1.165-1(d)(2)(i) of the regulations prohibits the deduction of any portion of a loss for which there is a reasonable prospect of recovery, petitioner concludes that he was required to amend his original 1969 return and reduce his reported loss by $16,000. We disagree with this argument for the reasons set forth hereinbelow.
A recovery in a later tax year does not prove that a reasonable prospect of recovering that specific amount existed in the earlier year. We believe petitioner has interpreted the phrase ‘reasonable prospect of recovery’ as synonymous with recovery in fact. The two cannot be used interchangeably. The existence of a reasonable prospect of recovery depends on the facts and circumstances as of the last day of the tax year in which the casualty occurred. That determination is a tool to help gauge whether the casualty is or is not ‘compensated for by insurance or otherwise.’ That in turn answers the question of whether the transaction is sufficiently closed and completed so as to require the immediate reporting of the loss. Events in a later tax year may well disprove the accuracy of the earlier determination. In that event, the facts arising in the later year are considered in the computation of income for that same year.
We find no authority in the regulations, or elsewhere, which would permit petitioner to file an amended return under the circumstances here presented. Petitioner's amendment goes beyond the correction of minor mathematical errors or miscalculations and attempts to rearrange facts and readjust income for 2 years. Such maneuvering is contrary to the fundamental principle that tax liability is based on facts as they exist at the end of each annual accounting period. See Keeler v. Commissioner, 180 F.2d 707 (10th Cir. 1950), affg. 12 T.C. 713 (1949). As we said long ago in Estate of William H. Block, 39 B.T.A. 338, 341 (1939), affd. sub nom. Union Trust Co. v. Commissioner 111 F.2d 60 (7th Cir. 1940), cert. denied 311 U.S. 658 (1940):
Income tax liability must be determined for annual periods on the basis of facts as they existed in each period. When recovery or some other event which is inconsistent with what has been done in the past occurs, adjustment must be made in reporting income for the year in which the change occurs. No other system would be practical in view of the statute of limitations, the obvious administrative difficulties involved, and the lack of finality in income tax liability, which would result. * * *
Furthermore, petitioner's argument disregards the clear language of section 1.165 1(d)(2)(iii) of the regulations on which respondent relies. That provision restates the ‘tax benefit rule’ which is applicable in like and similar circumstances where an amount deducted in 1 year is recovered in a later year. The amount recovered is income in the year of the recovery to the extent the prior deduction resulted in a tax benefit. The application of the tax benefit rule is not limited, as petitioner suggests, to situations where the recovery occurs after the prior year is closed by the statute of limitations.
We hold that petitioner properly deducted his casualty loss in 1969 and that the insurance recovery constitutes income in 1970 to the extent the petitioner benefited from the deduction of that amount in 1969. See Herman E. Londagin, 61 T.C. 117 (1973).
As to the second issue, respondent has determined a deficiency based on the partial cancellation of the debt owed by petitioner and Homer to Julian and Cornelia Kolden. The Koldens agreed in 1970 to accept $3,500 less than the balance due on their notes.
Generally, when a solvent debtor has a fixed obligation reduced or canceled, the amount of the reduction or cancellation constitutes income for tax purposes. Sec. 61(a)(12); United States v. Kirby Lumber Co., 284 U.S. 1 (1931). Unless the gain is excluded from income or its recognition postponed because of a statutory or judicial exception to this general rule, the amount of the debt cancellation is income in the year the debt is canceled. Herman E. Londagin, supra; L. D. Coddon & Bros., Inc., 37 B.T.A. 393 (1938).
Petitioner contends that the debt reduction did not produce taxable income in 1970 for two reasons. First, petitioner urges that section 108 permits him to reduce the basis of his property by the amount of the debt canceled. Secondly, he claims that until the property underlying the debt is disposed of, there can be no realization of income upon which an income tax can be levied. We shall consider each of these separately.
Section 108 permits a taxpayer to defer the recognition of debt forgiveness income where an election to reduce basis is timely filed. Since petitioner did not file a consent pursuant to the statute with his 1970 return, nor did he attempt to file prior to trial, see sec. 1.108(a)(2), Income Tax Regs., petitioner is not entitled to the protection of this provision. Although a consent need not be ‘letter perfect’ when filed, Ambassador Hotel Co. of Los Angeles, 23 T.C. 163 (1954), the benefits of section 108 are available only where the taxpayer timely elects such treatment. Cf. Columbia Gas System, Inc. v. Commissioner, 473 F.2d 1244 (2d Cir. 1973); Denman Tire & Rubber Co. v. Commissioner, 192 F.2d 261 (6th Cir. 1951), affg. 14 T.C. 706 (1950). Petitioner's argument that Agent Boon failed to inform him of the requirements of section 108 during the audit of petitioner's original 1969 return is without merit. A revenue agent bears no duty to advise taxpayers.
Petitioner next argues that there can be no taxable gain until the property securing the debt is disposed of. Petitioner cites Hirsch v. Commissioner, 115 F.2d 656 (7th Cir. 1940), revg. 41 B.T.A. 890 (1940), in support of this proposition.
The taxpayer in Hirsch purchased certain real estate in 1928 for $29,000. He paid $10,000 in cash and agreed to pay the balance in installments with the debt secured by a purchase-money mortgage. By 1936 the taxpayer had reduced the balance due to $15,000, however, during that interim, the property had depreciated in value to $8,000. The taxpayer sought to renegotiate the terms of the sale and the creditor agreed to accept $8,000 in full satisfaction of the debt. The Government contended that the debtor received a $7,000 gain from this accord by the Court of Appeals disagreed. The court held that the transaction was merely a reduction of the original purchase price. The court was unable to find any ‘income’ since the depreciated value of the property was less than the face of the debt by at least the amount of the debt canceled. Thus the taxpayer in Hirsch was permitted to reduce his basis in the property and postpone the recognition of gain or loss until the property was ultimately disposed of.
The Hirsch case represents a judicial exception to the general rule that a debt cancellation constitutes income in the year of the cancellation. The ‘reduction of purchase price’ exception is limited in scope and inapplicable to the facts at bar.
The exception does not apply where the secured property retained by the debtor has a value equal to or in excess of the obligation. Commissioner v. Coastwise Transportation Co., 71 F.2d 104 (1st Cir. 1934), revg. 22 B.T.A. 373 (1931), cert. denied 293 U.S. 595 (1934); see also L. D . Coddon & Bros., Inc., supra. Here the insurance proceeds received for the destroyed buildings exceeded the balance due on the obligation. Furthermore, these proceeds were payable directly to the Koldens, to the extent necessary to satisfy the debt, by virtue of the loss payable clauses in the insurance contracts.
This case is also distinguishable from Hirsch since petitioner has previously deducted the amount here in dispute.
Petitioner deducted his entire adjusted basis in the buildings as a casualty loss in 1969. This figure reflected the face amount of the Kolden obligation allocable to the buildings. Where an obligation previously deducted is later canceled in whole or in part, the reduction of purchase price exception is inapplicable. See Herman E. Londagin, supra. Cr. B. F. Avery & Sons, Inc. 26 B.T.A. 1393 (1932).
Respondent permitted petitioner to reduce his basis in the land by 20.8 percent of the debt canceled. That percentage figure corresponds to the percentage of the original purchase price attributable to the land. Thus, 79.2 percent of petitioner's one-half share of the debt cancellation is the amount of income respondent urges is taxable to petitioner in 1970.
We therefore hold the debt reduction constituted income to petitioner in 1970.
Finally, we must dispose of two additional matters raised by petitioner. Petitioner's arguments that the respondent is barred from asserting a deficiency since the examining agent determined the amended 1969 return required ‘No Change’ is without merit. The recommendation of an examining agent is not binding on respondent for purposes of litigation. See Sampson v. Commissioner, 444 F.2d 530 (6th Cir. 1971), affg. a Memorandum Opinion of this Court; Estate of Ella T. Meyer, 58 T.C. 69 (1972).
Secondly, petitioner points out that he was denied certain administrative rights normally accorded taxpayers who dispute a determination of the respondent. Specifically, petitioner did not receive the so-called ‘30-day letter’ or ‘preliminary notice’ nor did he have a formal district or appellate conference prior to the issuance of the deficiency. Apparently petitioner seeks to void the notice of deficiency by claiming that the respondent has violated his own rules as contained in Statement of Procedural Rules, secs. 601.105 and 601.106. The Court was not advised as to why these procedures, particularly the hearings, were not held. We do know, however, that certain settlement conferences were held prior to trial. Nevertheless, the law is clear that denial of these administrative hearings does not affect the validity of the deficiency notice. Such procedural guides are directory and not mandatory. Rosenberg v. Commissioner, 450 F.2d 529 (10th Cir. 1971), affg. a Memorandum Opinion of this Court; Luhring v. Glotzbach, 304 F.2d 560 (4th Cir. 1962).
Unfortunately for petitioner the result reached herein is a harsh one. While we sympathize with petitioner we cannot allow our sympathy to dictate a result contrary to the law. To reflect previous credits and adjustments,
Decision will be entered under Rule 155.