Petito v. Commissioner

T.C. Memo. 2000-363

UNITED STATES TAX COURT

JOHN J. PETITO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3277-00. Filed November 29, 2000.

John J. Petito, pro se.

Melinda G. Williams and Ronald Buch, for respondent.

MEMORANDUM OPINION

PANUTHOS, Chief Special Trial Judge: This case is before

the Court on petitioner's Motion to Reconsider Denial of Motion

to Dismiss. As explained in detail below, we shall deny

petitioner’s motion to reconsider.1

1
Section references are to the Internal Revenue Code in
effect during the years in issue. Rule references are to the Tax
Court Rules of Practice and Procedure.
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Background

Petitioner, an accountant, is the sole shareholder of an S

corporation, John J. Petito C.P.A., P.C. (Petito corporation).

On December 29, 1999, respondent issued a notice of deficiency to

petitioner determining a deficiency in, an addition to, and an

accuracy-related penalty for fraud with respect to his income tax

liability for 1992. The deficiency is attributable to

respondent’s determination that petitioner failed to report

income that he earned from Petito corporation.

Petitioner filed a timely petition contesting the notice of

deficiency described above. After respondent filed an answer to

the petition, petitioner filed a motion to dismiss the case on a

variety of grounds, including allegations that the notice of

deficiency is frivolous and respondent’s agents conducted the

audit in a negligent manner. We denied petitioner’s motion to

dismiss.

Petitioner subsequently filed a motion for reconsideration

alleging that the notice of deficiency is invalid on the ground

that, prior to issuing a deficiency notice to petitioner,

respondent was obliged under secs. 6241-6245 (the unified S

corporation audit and litigation procedures) to issue a notice of

S corporation administrative adjustment (FSAA) to Petito

corporation. Petitioner contends that, although Petito
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corporation would normally be excepted from the unified S

corporation audit and litigation procedures as a “small S

corporation” within the meaning of section 301.6241-1T(c)(2)(ii),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 3002 (Jan. 30,

1987), Petito corporation made a valid election on its 1986

corporate income tax return to invoke the unified audit and

litigation procedures. See sec. 301.6241-1T(c)(2)(v)(B),

Temporary Proced. & Admin. Regs., supra at 3003.

Respondent filed an objection to petitioner’s motion

asserting that petitioner had failed to provide any documentary

evidence, such as Petito corporation’s 1986 income tax return, to

support the proposition that Petito corporation made a valid

election under section 301.6241-1T(c)(2)(v)(B), Temporary Proced.

& Admin. Regs., supra. Respondent further argued that, even

assuming that Petito corporation made such an election on its

1986 corporate income tax return, respondent should be permitted

to rely on Petito corporation’s tax return for 1992 on which

petitioner failed to check box G which states: “Check this box if

this S corp is subject to the consolidated audit procedures of

sections 6241 through 6245 (see inst before checking this box)”.

Petitioner filed a reply to respondent’s objection asserting

that respondent already had possession of Petito corporation’s

1986 income tax return. Petitioner further argued that the Court
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should reject respondent’s alternative argument regarding Petito

corporation’s tax return for 1992.

This matter was called for hearing at the Court’s motions

session in Washington, D.C. Petitioner and counsel for

respondent appeared at the hearing and offered evidence and

argument in respect of the pending motion. During the hearing,

petitioner offered as an exhibit a purported copy of Petito

corporation’s tax return for 1986. The document that petitioner

offered lacked a signature, and petitioner had redacted all

numerical entries for the purpose of submission of the document

as an exhibit. The Court declined to admit the exhibit as

evidence. In support of his position that there was no record of

Petito corporation’s filing of a 1986 return or an election,

counsel for respondent offered as an exhibit a certified

transcript of account purporting to show that Petito corporation

did not file a tax return for 1986. The Court permitted counsel

for respondent to withdraw the offer of the exhibit due to

questions regarding the scope of the search that was performed in

preparing the transcript. Counsel for respondent nevertheless

argued that petitioner had the burden of showing that Petito

corporation made the requisite election.

Following the hearing, the parties filed a stipulation

including as an exhibit (Exhibit 1-P) a copy of Petito
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corporation’s 1986 tax return purportedly taken from petitioner’s

records. The signature line on the tax return is blank.

Further, although the tax return includes as an attachment a

statement that Petito corporation elects to have the unified S

corporation audit and litigation procedures apply to it, the

signature line under the election is blank. The stipulation

states that respondent objects to the admission of the exhibit

“on the grounds of relevance and because the exhibit is neither

the original nor an exact duplicate thereof.” The parties did

not stipulate that the tax return was filed with the Internal

Revenue Service (IRS).

Discussion

1. Jurisdiction/Section 6241

The Court's jurisdiction is dependent upon a valid notice of

deficiency and a timely filed petition for redetermination. See

Rule 13(a) and (c); Monge v. Commissioner, 93 T.C. 22, 27 (1989);

Normac, Inc. v. Commissioner, 90 T.C. 142, 147 (1988).

Petitioner challenges the validity of the notice of deficiency on

the ground that respondent failed to comply with the unified S

corporation audit and litigation procedures. See, e.g., Maxwell

v. Commissioner, 87 T.C. 783, 789 (1986) (taxpayer may challenge

validity of notice of deficiency on the ground that Commissioner
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failed to comply with the partnership audit and litigation procedures).

The unified S corporation audit and litigation procedures

are set forth in subchapter D of chapter 63 of subtitle F.2

Section 6241 provides: “Except as otherwise provided in

regulations prescribed by the Secretary, the tax treatment of any

subchapter S item shall be determined at the corporate level.”

Eastern States Cas. Agency, Inc. v. Commissioner, 96 T.C. 773,

775 (1991); Dial, USA, Inc. v. Commissioner, 95 T.C. 1, 1-2

(1990). The unified S corporation audit and litigation

procedures were intended to promote the consistent treatment of S

items among S corporation shareholders. See Allen Family Foods,

Inc. v. Commissioner, T.C. Memo. 2000-327; S. Rept. 97-640, at 25

(1982), 1982-2 C.B. 718, 729.

Pursuant to the authority granted under section 6241, the

Secretary promulgated regulations prescribing exceptions to the

unified S corporation audit and litigation procedures. In

particular, section 301.6241-1T(c)(2)(ii), Temporary Proced. &

Admin. Regs., supra, provides that the unified S corporation

2
Subchapter D of chapter 63 of subtitle F was codified
pursuant to the Subchapter S Revision Act of 1982, Pub. L. 97-
354, sec. 4(a), 96 Stat. 1691-1692, effective with respect to tax
years beginning after Dec. 31, 1982. Secs. 6241-6245 were
repealed under the Small Business Job Protection Act of 1996,
Pub. L. 104-188, sec. 1307 (c)(1), 110 Stat. 1755, effective with
respect to tax years beginning after Dec. 31, 1996.
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audit and litigation procedures generally are not applicable to a

“small S corporation”, defined as an S corporation with five or

fewer shareholders each of whom is a natural person or an

estate.3 On the other hand, the regulations permit small S

corporations to elect into the unified audit and litigation

procedures. Specifically, section 301.6241-1T(c)(2)(v),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 3003 (Jan. 30,

1987), provides:

(v) Election to have subchapter D of Chapter 63
Apply–-(A) In general. Notwithstanding paragraph
(c)(2)(ii) of this section, a small S corporation may
elect to have the provisions of subchapter D of chapter
63 of the Code apply with respect to that corporation.

(B) Method of election. A small S corporation
shall make the election described in paragraph
(c)(2)(v)(A) of this section for a taxable year of the
corporation by attaching a statement to the corporate
return for the first taxable year for which the
election is to be effective. The statement shall be
identified as an election under section 301.6241-
1T(c)(2)(v)(A), shall be signed by all persons who were
shareholders of that corporation at any time during the
corporate taxable year to which the return relates, and
shall be filed at the time (determined with regard to
any extensions of time for filing) and place prescribed
for filing the corporate return.

(C) Years covered by election. The election shall
be effective for the taxable year of the corporation to
which the return relates and all subsequent taxable

3
This regulation is effective with respect to S
corporation tax returns due on or after Jan. 30, 1987. See sec.
301.6241-1T(c)(2)(i), Temporary Proced. & Admin. Regs., 52 Fed.
Reg. 3003 (Jan. 30, 1987)
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years of the corporation unless revoked with the
consent of the Commissioner.

Consistent with the regulation quoted above, the unified S

corporation audit and litigation procedures are not applicable to

Petito corporation unless petitioner can demonstrate that Petito

corporation made a valid election under section 301.6241-

1T(c)(2)(v), Temporary Proced. & Admin. Regs., supra. As the

moving party, petitioner bears the burden of proof. See Pietanza

v. Commissioner, 92 T.C. 729, 736 (1989) (citing Southern Cal.

Loan Association v. Commissioner, 4 B.T.A. 223 (1926)); Casqueira

v. Commissioner, T.C. Memo. 1981-428.

2. Admissibility of Exhibit 1-P

As indicated, respondent objects to the admission of Exhibit

1-P (a purported unsigned copy of the 1986 tax return and

election retained by Petito corporation) “on the grounds of

relevance and because the exhibit is neither the original nor an

exact duplicate thereof”.

Proceedings in this Court are conducted in accordance with

the Federal Rules of Evidence. See sec. 7453; Rule 143.

Relevant evidence means evidence having any tendency to make the

existence of any fact that is of consequence to the determination

of the action more or less probable than it would be without the

evidence. See Fed. R. Evid. 401. The issue before us is whether
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Petito corporation made a timely election. Petitioner testified

that he prepared and filed a timely 1986 tax return and election

on behalf of Petito corporation. Certainly, petitioner is

entitled to have the Court consider evidence of a retained copy

of the return and election purportedly filed. We conclude that

the document is relevant. The remainder of respondent’s

objection--that the exhibit is neither an original nor an exact

duplicate--is nonsensical. Petitioner claims to have filed the

return and election with respondent. It would be entirely

consistent with this testimony that petitioner would not have the

original return or election in his possession. Furthermore,

petitioner testified that he photocopied the return and election

prior to signing the documents. Thus, respondent’s suggestion

that the exhibit is not an exact duplicate has no foundation.

See Fed. R. Evid. 1001(3) and (4), 1003, and 1004(3). Exhibit

1-P is relevant and admissible, and respondent’s objection is

overruled.

3. Whether Petito Corporation Made a Valid Election

Based on this record, we are not satisfied that Petito

corporation made a valid election to have the unified S

corporation audit and litigation procedures apply to it pursuant

to section 301.6241-1T(c)(2)(v), Temporary Proced. & Admin.

Regs., supra. The purported copy of Petito corporation’s 1986
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tax return and election is insufficient to establish that Petito

corporation made a timely election. There is no documentary

evidence reflecting that the purported 1986 corporate tax return

or the purported election attached to the return was ever signed

or mailed. Other than petitioner’s general statement that he

executed the return and election and mailed the documents, the

record is devoid of any specific identifiable event relating to a

mailing of the tax return to the IRS. Compare, for example,

Estate of Wood v. Commissioner, 92 T.C. 793 (1989), affd. 909

F.2d 1155 (8th Cir. 1990), where there was specific identifiable

and independent evidence that a tax return was mailed to the IRS;

Mitchell Offset Plate Serv., Inc. v. Commissioner, 53 T.C. 235

(1969), where the taxpayer presented specific credible evidence

as to the timely filing of an election under S; and Zaretsky v.

Commissioner, T.C. Memo. 1967-247, where the Court concluded,

after hearing three witnesses, that the taxpayer mailed a valid

election and consent to the IRS.

In this case we do not accept petitioner’s unsupported

self-serving testimony. See Niedringhaus v. Commissioner, 99

T.C. 202, 219-220 (1992). We note that the failure to check the

box on Petito corporation’s 1992 return (indicating that the

corporation is subject to the consolidated audit procedures of

sections 6241 through 6245) is consistent with our conclusion
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that an election was not filed with the IRS. Under the

circumstances, we hold that respondent was not obliged to issue

an FSAA to Petito corporation. Consequently, the notice of

deficiency that respondent issued to petitioner is valid.

We shall deny petitioner’s motion to reconsider the Court’s

order denying petitioner’s motion to dismiss. Petitioner failed

to demonstrate that the notice of deficiency in this case is

invalid.

To reflect the foregoing,

An order will be issued

denying petitioner’s Motion

To Reconsider Denial of Motion

To Dismiss.