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There is no defense of substantial compliance for failure to
comply with the essential requirements of the governing statute.
See Tipps v. Commissioner, 74 T.C. 458, 468 (1980); Penn-Dixie
Steel Corp. v. Commissioner, 69 T.C. 837, 846 (1978). As the
plain language of section 1042 indicates, the “essence” of the
statute is to demand evidence of a binding election to accept the
tax consequences imposed by the section. See Dunavant v.
Commissioner, supra at 320. Inasmuch as there was nothing on
petitioner’s return to inform the IRS that an election was made
and nothing on the return indicating that the sale had even
occurred, the essence of a valid election was missing, and the
use of the substantial compliance doctrine is insufficient to
secure the benefits of section 1042. Knight-Ridder Newspapers,
Inc. v. United States, supra.
Petitioner argues that we have held that a taxpayer
substantially complied with the requirements for an election even
though the taxpayer failed to meet the literal requirements for
an election. See Bond v. Commissioner, 100 T.C. 32 (1993);
Taylor v. Commissioner, 67 T.C. 1071, 1080 (1977); Hewlett-
Packard Co. v. Commissioner, 67 T.C. 736, 748 (1977); Columbia
Iron & Metal Co. v. Commissioner, 61 T.C. 5 (1973); Sperapani v.
Commissioner, 42 T.C. 308 (1964); Cary v. Commissioner, 41 T.C.
214 (1963). The cases that petitioner cites are inapplicable
because, as discussed above, the substantial compliance doctrine
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Last modified: May 25, 2011