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under which an S corporation will qualify for the small S
corporation exception to the unified S corporation audit and
litigation procedures. Considering the independent purposes that
section 1361(c) and section 301.6241-1T(c)(2), Temporary Proced.
& Admin. Regs., are designed to serve, and consistent with
accepted principles of statutory construction, we do not treat
section 1361(c) as a limitation or qualification on the otherwise
plain meaning of section 301.6241-1T(c)(2)(iii), Temporary
Proced. & Admin. Regs.
Petitioner's reliance on section 1.671-4(b), Income Tax
Regs., and section 301.6109-1(a)(2), Proced. & Admin. Regs., is
likewise misplaced. Although these provisions indicate that a
grantor trust generally is not treated as a separate taxable
entity for purposes of the Federal income tax, it is clear, as
discussed above, that a grantor trust, to the extent it
constitutes a form of pass-through entity, is not disregarded
with respect to the application of the unified audit and
litigation procedures.
Section 301.6241-1T(c)(2), Temporary Proced. & Admin. Regs.,
plainly states that the small S corporation exception to the
unified S corporation audit and litigation procedures only
applies to an S corporation with five or fewer shareholders each
of whom is a natural person or estate. The small S corporation
exception does not apply to an S corporation for a taxable year
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Last modified: May 25, 2011