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proper application of Federal tax law and thus is not a
ministerial act. Sec. 301.6404-2T(b)(1), Temporary Proced. &
Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).
Even if Mr. Matos simply followed his supervisor’s
instructions when he ultimately applied the personal holding
company provisions to KSCI and treated it as a C corporation,
the decision by the supervisor to apply those provisions to
KSCI was not a procedural or mechanical act. The decision
required the exercise of judgment and application of the law as
evidenced by the supervisor’s several requests recorded in the
activity record in KSCI’s underlying case that Mr. Matos
research the personal holding company rules.
Assuming arguendo that the treatment of KSCI as a personal
holding company was a ministerial act, the assessment of
interest in this case was not attributable to that act. The
interest at issue was assessed on a deficiency resulting from
petitioner’s failure to report capital gains and dividend
4(...continued)
accumulated earnings and profits to lose their S corporation
status and be treated as C corporations. The examining agent
here applied the personal holding company provisions to KSCI as
if the provisions operated in like manner to sec. 1362(d)(3) to
terminate a corporation’s valid election to be treated as an S
corporation. We note that former sec. 1372(e)(5) as originally
enacted in 1958 provided for the termination of S corporation
status if the corporation had passive investment income as
defined in sec. 1372(e)(5).
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