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the IRS had no record of an election for S corporation status for
Legal Search, on January 30, 1998, respondent mailed petitioners a
notice of deficiency disallowing the claimed $8,613 deduction.
OPINION
The ultimate dispute herein involves whether a timely election
was made by Legal Search to be treated as an S corporation. See
sec. 1362. If so, petitioners properly claimed a deduction for the
loss attributable to Legal Search on their 1995 Federal income tax
return. See sec. 1366. If not, respondent properly disallowed the
deduction.
Section 1362(a)(1) allows a small business corporation, as
defined pursuant to section 1361, to elect S corporation status.
An S corporation election can be made for any taxable year at any
time during the preceding taxable year or on or before the 15th day
of the third month of the current taxable year. See sec.
1362(b)(1). These time limits were imposed so that a corporation
could not make an election after it could predict its profitability
for the year with any certainty. Thus, this time restraint
prevented taxpayers from using S corporation status solely as a
tax-avoidance mechanism. See H. Rept. 95-1445, at 104 (1978),
1978-3 C.B. (Vol. 1) 181, 278.
A corporation that elects to take advantage of the benefits of
being treated as an S corporation must comply with the requirements
for making the election. See, e.g., Garrett & Garrett, P.C. v.
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