made to petitionersí Federal and New York taxable income if a copy of the complete K-1 from the Troy5 partnership was submitted. Petitioners did not submit any response to the August 30, 1996 Statement of Personal Income Tax Audit Changes.

6. Subsequently, the Division issued a Notice of Deficiency, dated October 21, 1996, for personal income taxes due pursuant to Article 22 of the Tax Law for the year 1993 in the amount of $5,244.81, plus interest of $1,126.08 and penalties of $825.28. No additional City of New York nonresident earnings tax was asserted. The computation section of the notice contained the following explanation "The following tax is computed as a result of the recent audit of your records. This tax is being assessed in accordance with the Statement of Proposed Audit Adjustments previously sent to you."

7. According to the August21, 1997 entry in the auditorís tax field audit record, petitioners filed a request for a conciliation conference, stating the basis for disagreement as the following: "Taxpayer has no federal adjusted gross income from New York sources for 1993 and therefore, no New York tax liability."

8. A Bureau of Conciliation and Mediation Services ("BCMS") conciliation conference took place on October 6, 1997. According to the entry in the audit record for that date, Mr. Moore came to the conciliation conference with an amended Form IT-203 for 1993 which increased the Federal adjusted gross income, but decreased New York source income. Mr. Moore did not have any supporting documentation for the amended return nor did he have a copy of the amended Federal return because it had yet to be completely prepared or filed with the Internal Revenue Service. The entry further states that the nature of the other income was first revealed during the conciliation conference when Mr. Moore stated that the other income was from his law practice conducted in New York City and that the correct net income from his law practice was a loss of $91,814.00 for Federal and New York State purposes. The auditor refused to accept the amended Form IT-203 without substantiation. The auditorís notes also indicate that the conferee gave her permission to request information from petitioners and to set up an appointment to review their records.

9. Another auditor met with Mr. Moore at his office on October 29, 1997. At that meeting, a general discussion about Mr. Mooreís legal practice took place. The audit record indicates that Mr. Moore explained that he had been in practice for approximately seven years and, in some of those years, he actually had positive net income. The auditor noted that Mr. Moore described his work as mostly "contingent," whereby if he recovers money or puts deals together (i.e., investment banking deals), he receives either a finderís fee or a percentage of the money recovered. Mr. Moore noted that lie handled other types of cases, but was not specific as to the nature of those matters. He further stated that if the money was not recovered or the deal was not consummated, he might not bill his client and just absorb the expenses. According to the auditorís notes, Mr. Moore maintained two checking accounts: one at the Bank of New York, account number 0951308998, in which all of his receipts were deposited and the other, a Dreyfus money market account in which distributions from his partnerships were deposited. Copies of the Bank of New York checking account statements were not provided.

10. The second auditorís notes indicate that, during that meeting, Mr. Moore provided an original "amended 1993 IT-203" to be filed through the Divisionís Buffalo District Office, but did not supply a copy of the amended Federal 1993 return because it was not yet completed. The notes also indicate that he submitted the following handwritten schedules: a Profit and Loss statement; "a list of receipts (clients);" a breakdown of all other business expenses (legal and other); a breakdown of office rent paid and copies of his American Express statements, indicating business meals deducted. The notes indicate that copies of canceled checks for most of the expenses, including those payments made to HQ Business Center for his office rent, were submitted The notes also indicate that amounts paid to HQ included fees

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