DocketNumber： Docket No. 15334-93
Judges： LARO
Filed Date： 8/29/1994
Status： Non-Precedential
Modified Date： 11/21/2020
*447 Decision will be entered for respondent.
P is the sole shareholder of E. P filed Forms 1120S for E for the 1989 and 1990 taxable years. P did not (and has never) filed a Form 2553. P filed joint Forms 1040 for the 1987, 1988, 1989, and 1990 taxable years. On these returns, P claimed deductions for the pass-thru of losses from E.
Respondent did not accept nor recognize the Forms 1120S as filed for E; instead, respondent accepted the returns for E as the returns of a C corporation for the taxable years 1989 and 1990.
MEMORANDUM OPINION
LARO,
The record in this case consists of the facts recited in a joint stipulation and in the accompanying exhibits. These facts and exhibits are incorporated herein by this reference. When he filed his petition, petitioner resided in Silver Springs, Maryland.
On February 1, 1987, Elite was incorporated with petitioner as the sole shareholder. Petitioner did not (and has never) filed a Form 2553, Election by a Small Business*449 Corporation. For the 1987 taxable year, petitioner filed a joint Federal income tax return (Form 1040). This return was filed sometime after August 8, 1988, but before the end of 1988. On this return, petitioner claimed a $ 4,482 loss from the activities of Elite. Attached to petitioner's 1987 return was a Shareholder's Share of Income, Credits, Deductions, etc. (Schedule K-1) issued by Elite.
Petitioner filed U.S. Income Tax Return for an S Corporation (Form 1120S) for Elite for the 1989 and 1990 taxable years. *450 Respondent disallowed petitioner's deductions for the pass-thru of these losses because Elite had never filed Form 2553 consenting to be taxed as an S corporation.
Petitioner bears the burden of proving that respondent's determinations in the notice of deficiency are erroneous. Rule 142(a);
Section 1362(a) allows a small business corporation to elect to be governed by the provisions of subchapter S for its current taxable year. The election must be made during the preceding taxable year or before the 15th day of the third month of the current taxable year. Sec. 1362(b)(1). Section 1362(a)(2) provides that all shareholders must consent to the election to be governed by the provisions of subchapter S. An election under section 1362(a) is generally effective for the taxable year in which it is made*451 and for all succeeding taxable years, unless terminated under section 1362(d). Sec. 1362(c). If the election is filed after this 2-1/2-month period, but before the end of the taxable year, the election will be effective for the following taxable year. Sec. 1362(b)(3). Section 1377(c) provides that the Secretary shall prescribe the regulations which govern the election to be an S corporation.
*453 Petitioner concedes that Elite failed to file Form 2553, but contends that Elite made a valid election of S corporation status in 1988 by filing Form 1120S for the 1987 taxable year. Petitioner argues that Form 2553 is not required to be filed in order for Elite to elect S corporation status; rather, petitioner's 1987 Form 1040 taken in conjunction with Elite's 1987 Form 1120S satisfies the requirements set forth in section 1362 and the regulations thereunder. Petitioner bases his argument on the premise that his 1987 Form 1040 constitutes his consent (i.e., the requisite shareholder's consent) because he is the sole shareholder and Elite's 1987 Form 1120S constitutes Elite's election to be classified under the provisions of subchapter S. *454 This Court has held elections effective where the taxpayer complied with the essential requirements of a regulation even though the taxpayer failed to comply with it in every detail. In ascertaining whether a particular provision of a regulation stating how an election is to be made must be literally complied with, it is necessary to examine its purpose, its relationship to other provisions, the terms of the underlying statute, and the consequences of failure to comply with the provision in question. * * * [ At the heart*455 of the inquiry into whether a particular election is procedural or mandatory is whether the failure in complying with the literal requirements by the taxpayer goes to the "essence" of the provision, or whether it is merely a relatively ancillary, minor procedural infirmity. The common denominator among the cases seems to be that, at a minimum, the taxpayer needs to provide the Service with sufficient notice of his intent to make the election.
We are unable to apply the doctrine of substantial compliance to the case at hand. The mere filing of Form 1120S is not a valid election under section 1362, even for*456 a subsequent year. See, e.g.,
Petitioner cites
In light of our conclusion that Elite's Form 1120S does not constitute a valid corporate election and that petitioner's Form 1040 does not constitute a valid shareholder consent we need not decide whether use of Form 2553 is mandatory for a proper election. See, e.g.,
We have considered all arguments made by petitioner and, to the extent not addressed above, find them to be without merit.
For the foregoing reasons,
1. Although Rose Elbaum, the wife of Saul Elbaum is a petitioner in this case -- she filed a joint Federal income tax return with her husband during the years in issue -- we hereinafter refer solely to Saul Elbaum as petitioner.↩
2. The record does not indicate whether Elite filed Form 1120S for the 1987 or 1988 taxable year.↩
3. Until final regulations are issued, temporary regulations are entitled to weight comparable to that of final regulations.
4. We note that the record does not show that Elite filed a 1987 Form 1120S. Although petitioner claims on brief that Elite filed a 1987 Form 1120S, this Court does not consider statements in brief as proof. Rule 143(b);