- 17 -
Commissioner, T.C. Memo. 1993-158; see also sec. 18.1362-1(a),
Temporary Income Tax Regs., 48 Fed. Reg. 3591 (Jan. 26, 1983).
Moreover, S corporation status must be firmly and clearly
elected. Smith v. Commissioner, T.C. Memo. 1988-18. This Court
has required compliance with the requirements of S corporation
elections. See Combs v. Commissioner, T.C. Memo. 1989-206, affd.
without published opinion 907 F.2d 151 (6th Cir. 1990). It is
essential to establish that an S corporation election has been
made and the effective date of the election so as to preclude the
use of the S corporation election as a tax avoidance mechanism
and to bind the corporation and its shareholders to the election.
Garrett & Garrett v. Commissioner, supra; Rockwell Inn, Ltd. v.
Commissioner, supra.
2. NTI's S Corporation Election.
Set against this background, we consider whether
respondent's position is substantially justified, keeping in mind
that petitioner bears the burden of proving that it is not. Sec.
7430(c)(4)(A); Rule 232(e); Gantner v. Commissioner, 92 T.C. 192,
197 (1989), affd. 905 F.2d 241 (8th Cir. 1990).
Up until the point that respondent conceded the case,
respondent's position was that the Dugans could not compute their
1988 and 1991 Federal income tax liabilities taking into account
the passthrough loss from NTI in 1991 because NTI's S corporation
election was not effective until 1993. This determination was
based upon the Form 2553 received in the Service Center on
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