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2618 Inc's Subchapter S Election -- 1988
By amended answer, respondent argues that due to the $91,668
improper deduction claimed for legal fees on 2618 Inc’s tax return
for 1988 (which under our findings is to be treated as payments of
principal on the $275,000 TexGuarantyBk loan), 2618 Inc’s income for
1988 should be increased by $91,668, and petitioner should now be
charged with $91,668 in additional flow-through income from 2618 Inc.
Petitioner counters that because Helmle did not sign the consent
to elect S corporation status, 2618 Inc did not make a valid S
corporation election for 1988, and petitioner should not be required
to report as flow-through income the $91,668 increase to the income
of 2618 Inc. For the same reason, petitioner now seeks to remove
from his reported taxable income for 1988 the $32,326 in S
corporation flow-through income from 2618 Inc that was reported on
his 1988 Federal income tax return.
Respondent argues that the attempted S election made on behalf
of 2618 Inc on March 15, 1988, was valid because, during all of 1988,
petitioner, not Helmle, was the sole person in control of 2618 Inc.
Section 1362(a) provides that small business corporations may
elect to be governed by the provisions of subchapter S and thereunder
to be taxed as flow-through entities. Sec. 1362(a). For such an
election to be valid, all shareholders of the corporation, as of the
date the election is made, are required to consent to the election.
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