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taxable year. At about the same time, the Commissioner also
issued Notices of Final S Corporation Administrative Adjustment
for the corporation's 1986, 1987, and 1988 taxable years.
The Ronald E. Scherer Trust (the "Scherer Trust") was the
Tax Matters Person of the corporation, for purposes of section
6231(a)(7), and a Notice Person of the corporation for purposes
of sections 6226(b)(1) and 6231(a)(8). The Linda S. Hayner Trust
(the "Hayner Trust") was also a Notice Person of the corporation.
The Scherer Trust, as Tax Matters Person, failed to file a
petition for readjustment of subchapter S items within the period
specified in section 6226(a). However, the Scherer Trust and the
Hayner Trust, as Notice Persons, timely filed a petition for
readjustment of subchapter S items under section 6226(b).
The parties have reached an agreement on all issues save the
treatment of adjustments to closing inventory and to cost of
goods sold pursuant to section 1.458-1(g), Income Tax Regs.
Petitioners contend that section 1.458-1(g), Income Tax Regs., is
invalid. However, the parties have stipulated that if this Court
determines that the regulation is valid, the adjustments made by
the Commissioner are proper and should be allowed in their
entirety.
Section 458(a) provides that an accrual basis taxpayer "may
elect not to include in * * * gross income for the taxable year
the income attributable to the qualified sale of any magazine,
paperback, or record which is returned to the taxpayer before the
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