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operating loss, which the Dugans carried back by amended return
to 1988.
In a letter addressed to NTI dated August 3, 1992, Della A.
Sanford, Chief of the Correspondence Section at the Service
Center: (1) Advised NTI that the 1991 Form 1120S could not be
processed because respondent had "no record of * * * [NTI's]
filing Form 2553 and electing to be treated as an S corporation";
(2) requested a copy of a Form 2553 if one had been filed; and
(3) advised that unless the requested information were received
within a specified period, the Form 1120S would be processed as a
"corporation income tax return (Form 1120)". Between receipt of
the April 9, 1991, and August 3, 1992, letters, no correspondence
or communication was exchanged between NTI, or anyone on its
behalf, and respondent regarding the Form 2553 which had been
submitted in March 1991.
In May 1992 Mrs. Dugan hired Alice McMurray to perform
secretarial and bookkeeping work for NTI. Mrs. Dugan requested
that Ms. McMurray respond to respondent's August 3, 1992, letter.
After examining and discussing respondent's August 3, 1992,
letter with Ms. Tidwell, Ms. McMurray located the signed Form
2553 dated March 14, 1991, and respondent's April 9, 1991, letter
in NTI's files. At some point, either Ms. Tidwell or Ms.
McMurray contacted Mr. Frey about the intended effective date of
NTI's S corporation election, and he indicated that the election
was intended to have been effective as of January 1, 1991.
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