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B. Western Timber Farm, Inc.
Petitioners organized Western Timber Farm, Inc. (Western),
on February 4, 1993. Petitioners alternately served as president
of Western during the years in issue.
On April 20, 1993, Mrs. Arnold signed a Form 2553, Election
by a Small Business Corporation, for Western in which she stated
that Western wanted to adopt a tax year ending January 31. Mrs.
Arnold stated on the form that the year ending January 31 was
Western’s natural business year as provided in Rev. Proc. 87-32,
secs. 4.01 and 4.02(a), 1987-2 C.B. 396, 399.3
In a letter to Western dated February 12, 1996, respondent
acknowledged receipt of the Form 2553 and stated that the
acknowledgment was not an acceptance of the election. In a
letter to petitioners dated December 21, 1998, respondent said
that Western’s S corporation election was not valid. In a letter
to respondent dated July 28, 1999, Mr. Arnold protested
respondent’s denial of Western’s S corporation election and
argued that Western was entitled to adopt a fiscal year ending
January 31.
In a letter to Mr. Arnold dated March 19, 2001, respondent
stated that respondent had reviewed Western’s Form 1120S, U.S.
Income Tax Return for an S Corporation, for 1998. According to
3 Rev. Proc. 87-32, 1987-2 C.B. 396, was in effect in 1999
and 2000. It was superseded by Rev. Proc. 2002-38, 2002-1 C.B.
1037, effective for tax years ending on or after May 10, 2002.
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