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Amended U.S. Individual Income Tax Return, filed by petitioners
that are intended to cancel "the previously filed Schedule E's
and have substituted Schedule C's". The amended returns were
received by the Service Center on December 11, 2000. On page 2,
Part II of the returns, Explanation of Changes to Income,
Deductions, and Credits, petitioners state that the returns are
being "filed to remove the K-1 from Cactus Quail Enterprises,
Inc. per letters from the IRS disallowing the S-corporation
election." The explanation further states that the State
corporation commission reports for the corporation were not filed
for 1997, 1998, and 1999, and that the "corporation was no longer
valid after 12/31/96."
Discussion
Petitioners' argument on brief is that they did business as
a proprietorship for the years at issue but, if they were doing
business as a corporate entity, then such entity was an S
corporation under section 1361.
Respondent's position is that petitioners failed to make an
election under section 1362. Respondent further argues that
petitioners have not shown that they were doing business as a
proprietorship in 1997 and 1998, but that even if they were, they
have not shown that they actually incurred the expenses they now
claim are deductible on Schedules C, Profit or Loss From
Business, of their personal returns.
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