You can basically do the equivalent of an order to show cause: as in make them show you how taxing you for bills you redeemed for lawful money and were effectively the underwriter could be regarded to give rise to any taxable gain to you? Kind've relates to "conditional acceptance". I would avoid arguing as to the amount or whether you owe or not. I'd ask questions as how why they are arguing or disputing the Federal amount or Federal filing. Specifically why are they creating a controversy over a matter settled in the U.S. Tax Court.
Re: State Liability
Sure, State liability could arise from property tax, motor vehicle fees, sales tax, use tax, taxes assessed by the State or even from insufficient State taxes withheld--he isn't saying anything unique .. "it can exist"--true. Did you have any of that State-level kind of tax liability with respect to that filing?
Presumption
Of course, if amount of taxable income on the Federal level is the same as the on the State level then the issue overall might be moot. If there is a discrepancy per Oregon Dept. Revenue's "magic abacus" then I'd say there seems to be problem.
Re: Falsification
Also I would not falsify any such filing, that's asking for trouble. Perjury in State tax court? Not a good idea maybe?
Can we has some munnie pwease even doe we issint owed it?