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However, if a taxpayer chooses to conduct business through a
corporation and gains an advantage from its use, the taxpayer is
not permitted subsequently to deny the existence of the
corporation for tax purposes. Id.; Weigman v. Commissioner,
supra.
In general, any “small business corporation” may elect to be
an “S corporation” under section 1362(a)(1). One of the effects
of electing S corporation status is that income earned by the
corporation is not taxed at the corporate level. Sec. 1363(a).
However, taxable income is still computed at the corporate level.
Sec. 1363(b). Accordingly, S corporations are required to file
yearly tax returns and to provide copies of the information on
those returns to its shareholders. Sec. 6037(a) and (b). The
individual shareholders, in turn, are required to either report
on their own returns all S corporation items consistently with
the corporate return or to file a statement identifying
inconsistencies or noting that a corporate return was not filed.
Sec. 6037(c). Thus, the corporate entity cannot be ignored, even
if the corporation has elected S corporation status. Byrne v.
Commissioner, 45 T.C. 151, 157 (1965), affd. 361 F.2d 939 (7th
Cir. 1966); see also Weibusch v. Commissioner, 59 T.C. 777
(1973), affd. 487 F.2d 515 (8th Cir. 1973).
Taxpayers are required to maintain records sufficient to
establish the amounts of income, deductions, and other items
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Last modified: May 25, 2011