Emil Fankhauser - Page 3

               On January 8, 1993, petitioner met with John Herman, a                 
          certified public accountant, in Mr. Herman's office.  On behalf             
          of Management, Mr. Herman had prepared and signed a Form SS-4,              
          Application for Employer Identification Number.  Mr. Herman also            
          prepared a Form 2553, Election by a Small Business Corporation,             
          that was signed by petitioner in his capacity as a consenting               
          shareholder and president of Management.  The Form 2553 listed              
          the effective date of the election to be January 2, 1993.  Mr.              
          Herman placed both forms in an envelope addressed to respondent's           
          Cincinnati Service Center (the service center) and gave the                 
          envelope to petitioner.                                                     
               Mr. Herman prepared a Form 1120S, U.S. Income Tax Return for           
          an S Corporation, on behalf of Management for the year 1993.                
          After accounting for various items of income and deductions, the            
          return reflected an ordinary loss from business activities in the           
          amount of $16,843.  The return was received by the service center           
          on March 10, 1994.  In a letter dated April 14, 1994, Management            
          was notified by the service center that the return could not be             
          processed because the Internal Revenue Service had no record of             
          Management's election to be treated as an S corporation.  The               
          letter invited Management to forward certain information in order           
          to verify that a timely S corporation election had been filed.              
               Mr. Herman responded to the letter from the service center             
          in a letter dated May 11, 1994.  In his letter Mr. Herman                   
          indicated that the Management's S corporation election was                  






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