Tax Court and Board of Tax Appeals Memorandum Decisions
Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10 Instructions:
Tax Court and Board of Tax Appeals Memorandum Decisions
- H. Campbell & Bros., Inc, TC Memo 1975-149. , Code Sec(s) 1372.
- H. CAMPBELL & BROS., INC.
Case Information:
[pg. 75-679]
Code Sec(s): 1372 Docket: Docket No. 5195-72. Date Issued: 05/19/1975 Judge: Opinion by HALL,J. Tax Year(s): Years 1970, 1971. Disposition: Deficiencies redetermined. Cites: TC Memo 1975-149, PH TCM P 75149, 34 CCH TCM 695. HEADNOTE
- SUBCHAPTER S ELECTION—Election—time for election. Subchapter S treatment denied clothing store that had invalidly filed for qualification on two separate occasions. First election attempt was filed too late into existing tax year. Second election attempt was prematurely filed for intended subsequent tax year. No matter that IRS had mistakenly marked second election attempt as valid: estoppel wouldn’t preclude IRS from correcting mistake in law.
Reference(s): 1975 P-H Fed. ¶33,397; Code Sec. 1372.
Syllabus
Official Report
Counsel
Edward M. Dooley, for the petitioner.
Christopher D. Rhodes, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HALL, Judge:
Respondent determined the following deficiencies:
Taxable Year Ended Deficiency
January 31, 1970 …………….. $18,072.54
January 31, 1971 …………….. 15,118.80
The only issues for decision are whether on each of two separate occasions petitioner (a corporation) complied with the filing requirements to qualify for tax treatment under the subchapter S provisions of the Internal Revenue Code.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
- H. Campbell & Bros., Inc., petitioner, is a Kentucky corporation whose principal place of business was Middlesboro, Kentucky when it filed its petition. It was incorporated on February 1, 1965. The business was operated as a partnership prior to incorporation, and consisted of a retail clothing store both before and after incorporation. The clothing store’s operations were uninterrupted by the incorporation.
Upon incorporation petitioner’s shareholders elected to be taxed under subchapter S. They mailed Form 2553 (Election by Small Business Corporation) on March 1, 1965, the election to be effective February 1, 1965. The
form was enclosed in an envelope postmarked March 1, 1965. Form 2553 was received by the district director at Louisville on March 3, 1965. In a letter dated March 16, 1965, respondent’s Louisville office advised petitioner
that Form 2553 which had been filed March 1, 1965, was not timely, and therefore the corporation had to file returns as though no election had been made. Thereafter, petitioner filed standard federal corporate income tax
returns, Forms 1120, for the taxable years ended January 31, 1966, 1967 and 1968.
On November 18, 1968 petitioner again submitted Form 2553, said election to be effective February 1, 1969. The Form 2553 was received by the district director on November 20, 1968. However, it is stamped “ACCEPTED
DEC 13 1968″ and it is also stamped in the upper right hand corner with an identification number and the date January 2, 1969. Respondent determined that this election was premature and hence ineffective, and assessed
deficiencies against petitioner for the years ended January 31, 1970 and 1971.
OPINION
Section 1372(a) 1 provides that a small business corporation may elect not to be subject to Federal income taxes with certain exceptions not here material. Section 1372(c)(1) dictates that the election for sub-chapter S
treatment must be made ” *** for any taxable year at any time during the first month of such taxable year, or at any time during the month preceding such first month.” The election is made by filing Form 2553 with
respondent. Section[pg. 75-680] 1.1372-2, Income Tax Regs. Once a valid election has been made, it remains in effect for succeeding taxable years unless the election is terminated. Section 1372(d). Section 1372(a) speaks
in terms of “months.” If the first day of the first month of the taxable year is on the first day of a month, the election must be filed during that month or the preceding month, regardless of the number of days in each month.
Regulation section 1.1372-2(b)(1) expands upon the statute, noting that where a new corporation’s taxable year begins after the first day of a calendar month, a ” *** ‘month’ means the period commencing with the
beginning of the first day of the taxable year and ending with the close of the day preceding the numerically corresponding day of the succeeding calendar month *** ” and that the first month of the taxable year of a new
corporation begins when ” *** the corporation has shareholders or acquires assets or begins doing business, whichever is the first to occur.”
Petitioner claims that it timely executed and filed on two separate occasions Form 2553, thereby complying with the requirements of section 1372(c)(1). Petitioner makes two arguments. First, petitioner contends that its election filed March 1, 1965 was valid, and that said election remained in effect through the years at issue even though it filed corporate income tax returns for those years rather than subchapter S returns. Second,
petitioner contends that even if the first election were invalid, the election filed in November 1968 for the taxable year beginning February 1, 1969 was valid, and respondent is estopped to contest its validity because of his
acts indicating acceptance. Respondent disagrees, arguing that the earlier election was not timely and is therefore invalid, that the later election was filed prematurely and therefore is invalid, and that he is not estopped to
contest the validity of the latter election where his apparent acceptance was the result of a mistake of law. We agree with respondent.
We commence our analysis with the earlier attempted election. Petitioner had been operating as a partnership prior to incorporation on February 1, 1965. It was engaged in the retail clothing store business. Petitioner filed
required Form 2553 on March 1, 1965 seeking to benefit from the subchapter S provisions of the Code. Had those been the only facts before us it would have been axiomatic that petitioner filed its election one day late. The
final date for filing would have been the last day of February 1965, assuming the first day of the first month of petitioner’s taxable year was February 1, 1965.
But petitioner asserts that the corporation did not begin doing business until February 2, 1965, and therefore it could file Form 2553 through March 1, 1965. See Reg. 1.1372-2(b)(1), Income Tax Regs. Petitioner has the
burden of proof (Rule 142, Rules of Practice and Procedure, United States Tax Court) and it has failed to sustain its contention that the corporation’s first taxable year for election purposes did not begin until February 2,
1965. Petitioner failed to introduce any evidence to show that the corporation did not have shareholders or assets as of February 1, 1965, the day of incorporation. Further, George Campbell, petitioner’s executive vice
president, testified that the clothing store did not discontinue operations immediately prior to the period of incorporation. Without other convincing evidence, we can only conclude that the corporation was doing business
on February 1, 1965. See Nick A. Artukovich, 61 T.C. 100, 106, fn. 8 (1973).
While petitioner filed the election only one day late, we noted on an earlier occasion that ” *** section *** 1372(c)(1) *** [is] both demanding and explicit. There is no provision for leniency with respect to the filing of elections
under subchapter S. *** [W]hatever the equities or the harsh results, we do not feel that we can grant an extension of time where Congress has specifically set the time for the making of the election required by the Code if
the privilege of special tax treatment is to be enjoyed by certain small business corporations.” William Pestcoe, 40 T.C. 195, 198 (1963); see also Joseph W. Feldman, 47 T.C. 329 (1966); Calhoun v. United States, 370 F.Supp.
434, 438-439 [ 33 AFTR 2d 74-305] (W.D. Va., 1973); Rowland v. United States, 315 F.Supp. 596, 600 [ 26 AFTR 2d 70-5407] (W.D. Ark., 1970); Simons v. United States, 208 F.Supp. 744, 746 [ 10 AFTR 2d 6104] (D. Conn.,
1962).
In the second attempted election petitioner filed Form 2553 in November 1968, well before January 1, 1969, which would have been the earliest possible date for the filing to be effective for the year commencing February 1,
1969. Section 1372(c)(1). This filing was premature and hence invalid. As noted above, the courts have required strict compliance with the subchapter S election requirements.
Respondent received Form 2553 on November 20, 1968, and it is stamped “ACCEPTED DEC 13 1968.” There is also an identifying number and the date January 2, 1969 stamped in the upper right hand corner [pg. 75-681] of
the form. Petitioner argues that these dates indicate acceptance by respondent of petitioner’s election and that respondent is now estopped to argue otherwise.
The filing requirements were specified by law. The fact, if it is a fact, that respondent’s agents, while knowing the facts, had a mistaken belief as to their legal consequence would be a mere mistake of law. Cf. Fruehauf
Trailer Co., 42 T.C. 83, 98-99 (1964), affirmed 356 F.2d 975 [ 17 AFTR 2d 560] (C.A. 6, 1966), certiorari denied 385 U.S. 822 (1966). The principle of estoppel will not preclude respondent from correcting any mistake of law
herein. Dixon v. United States, 381 U.S. 68, 72-73 [ 15 AFTR 2d 842] (1965).
Decision will be entered under Rule 155.
1 All section references are to the Internal Revenue Code of 1954, as in effect for the years in issue.
Tax Court and Board of Tax Appeals Memorandum Decisions
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
You Can Also Place the Order at www.collegepaper.us/orders/ordernow or www.crucialessay.com/orders/ordernow