Collin L. Dugan - Page 8

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          made effective as of January 1, 1993.  Ms. Tidwell notified Mrs.            
          Dugan that the effective date of the election was contrary to the           
          date of the intended election and her understanding of NTI's                
          status when she prepared the Forms 1120S for NTI.  Ms. Tidwell              
          also advised Mrs. Dugan that the disagreement with respondent               
          with respect to the effective date of NTI's S corporation                   
          election needed to be resolved.                                             
               At some point after the August 25, 1992, letter was sent,              
          NTI's copies of respondent's April 9, 1991, letter and the date             
          stamped Form 2553 were apparently misfiled and could not be                 
          located.  On September 24, 1993, Ms. Tidwell sent a letter on               
          behalf of NTI to respondent requesting a copy of respondent's               
          April 9, 1991, letter.  Neither Ms. Tidwell nor NTI received a              
          response to this letter.                                                    
               On September 24, 1993, Mrs. Dugan filed a bankruptcy                   
          petition in the U.S. Bankruptcy Court for the Middle District of            
          Tennessee.  The Dugans filed their 1992 joint Federal income tax            
          return on October 18, 1993, on which they claimed a passthrough             
          loss deduction of $154,855 from NTI.                                        
               By letter dated November 1, 1993, Ms. Sanford notified NTI             
          that the 1992 Form 1120S could not be processed.  The contents of           
          this letter were similar to the contents of her August 3, 1992,             
          letter to NTI regarding its 1991 Form 1120S.  NTI did not respond           
          to respondent's November 1, 1993, letter.                                   






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