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on S corporations by section 13742) on its S corporation tax
returns (Forms 1120S, U.S. Income Tax Returns for an S
Corporation) for fiscal years 1996, 1997, and 1998.
Respondent sent petitioner a notice of deficiency in which
respondent determined that petitioner was subject to the built-in
gains tax under section 1374 for the expansion payments
petitioner received in fiscal years 1996, 1997, and 1998. As of
the time respondent filed the motion to dismiss, respondent had
issued no notice of final S corporation administrative adjustment
(FSAA) to petitioner for fiscal year 1996 or 1997.3
Discussion
A. Respondent’s Motion To Dismiss for Lack of Jurisdiction
Respondent contends that the notice of deficiency was
invalid and that we lack jurisdiction as to petitioner’s fiscal
years 1996 and 1997 because the proposed built-in capital gains
adjustments to petitioner’s 1996 and 1997 returns were subchapter
S items that must be determined in a unified audit and litigation
proceeding. The adjustments to petitioner’s fiscal years 1996,
2 Sec. 1374 imposes a corporate level tax on the recognized
built-in gains of an S corporation that has converted from C
corporation to S corporation status. See discussion pp.
6-7, below.
3 The S corporation audit and litigation procedures (secs.
6241 through 6245) were repealed, effective for tax years
beginning after Dec. 31, 1996, by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, sec. 1307(c)(1), 110
Stat. 1781. Thus, petitioner’s fiscal year 1998 is not affected
by those procedures.
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