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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