- 15 - We disagree with petitioner’s reasoning. First, the examining agent’s characterization of KSCI as a C corporation was a result of the misapplication of the personal holding company provisions of the Internal Revenue Code. Mr. Matos was instructed by his supervisor to research the effect of the personal holding company rules on the Chans’ Form 1040 and KSCI’s Form 1120S. Mr. Matos’s activity record indicates that Mr. Matos researched, albeit cursorily, the personal holding company provisions and concluded that two tests determined whether a corporation was a personal holding company: The stock ownership test and the adjusted gross income test. It appears that on the basis of this research Mr. Matos’s supervisor instructed him to apply the personal holding company provisions to KSCI. Mr. Peter, the Appeals officer assigned to the administrative appeal of the underlying cases, determined that Mr. Matos had incorrectly treated KSCI as a personal holding company. Mr. Peter concluded that pursuant to section 1363(a) the personal holding company tax is not applicable to electing subchapter S corporations. Section 1363(a) provides that “Except as otherwise provided in this subchapter, an S corporation shall not be subject to the taxes imposed by this chapter.” The chapter referred to is chapter 1 of the Internal Revenue Code of which the personal holding company provisionsPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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