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42 T.C. 308, 330-333 (1964). However, there is no defense of
substantial compliance for failure to comply with the essential
requirements of the governing statute. Prussner v. United
States, 896 F.2d 218, 224 (7th Cir. 1990); see also Tipps v.
Commissioner, supra at 468; Penn-Dixie Steel Corp. v.
Commissioner, 69 T.C. 837, 846 (1978); Rockwell Inn, Ltd. v.
Commissioner, T.C. Memo. 1993-158. We have looked to the
specific requirements of the election provision to determine
whether they relate to the substance or "essence" of the
statutory and regulatory scheme. Young v. Commissioner, 83 T.C.
831, 838 (1984), affd. 783 F.2d 1201 (5th Cir. 1986); Tipps v.
Commissioner, supra. In ascertaining whether a particular
provision of a regulation must be literally complied with, it is
necessary to examine its purpose, its relationship to other
provisions, the terms of the underlying statute, and the
consequences of failing to comply with the provision in question.
Young v. Commissioner, supra; Hewlett-Packard Co. v.
Commissioner, supra at 748-749; Valdes v. Commissioner, 60 T.C.
910, 913 (1973). In addition, the omission of the required
material must not operate to respondent’s prejudice. Tipps v.
Commissioner, supra; Taylor v. Commissioner, supra, at 1079-1080;
Rockwell Inn, Ltd. v. Commissioner, supra.
In the case at hand, respondent's determination that EMFI
elected to distribute earnings and profits is not based upon an
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