Office of Chief Counsel

.

Office of Chief Counsel

Internal Revenue Service

i

memorandum

I

CC:NER:MIC:DET:TL-N-3211-99

RDHeitmeyer

date:

AIJG 0 g 1999

to:

Chief,

Quality

from,

District

subject

--EIN:

Measurement

Branch,

Michigan

Michigan

District,

Detroit

Counsel,

District

--------- -------- ------------------

In response to your request for an advisory

opinion

concerning

whether the

--- --------- ------- -------- --xpayer)

is

entitled

to retain

a fis--------------- ------ --- ------ ----- we have

reviewed the information

you provided to our office

as referenced

by the attached

exhibits

A though J, as well as the attached

taxpayer's

written

response to the -------nation

Division's

proposed accounting

change from a ------ --- fiscal

ear-end

to a

------------- ---- fiscal

year-end for th-- ------- and ------- taxable years.

ISSUE

May the Internal

Revenue Service (the Service)

convert

the

taxpayer

from a ----- ---- fiscal

year-end to a ------------- ---- fiscal

year-end where t---- -----ayer

has filed

a Form- ----------- ------ Income

Tax Return for an S Corporation

with a fiscal

year end date of

----- ---- for all periods after

------ where the taxpayer properly

-----------d

a Form 2553, Election

by a Small Business Corporation

to the Internal

Revenue Service on ----- ----- -------- where the

Internal

Revenue Service Center at Cincinnati,

Ohio issued a

letter

accepting

the taxpayer's

election

to be treated

as an S

corporation

with a fiscal

year end of ----- ----- and where to change

the accounting

period at this time will ------result

in a notice

of deficiency

being issued to the taxpayer claiming

a deficiency

of $ ---------------for the

----- taxable year based solely on the

proposed change in the taxpayer's

accounting

period.

CONCLUSION

The taxpayer

is

-------to retain

an accounting*period

with

a fiscal

year end of ------ --- for the years at issue.

The advice

contained

in this memorandum is subject to lo-day post-review

in

<,,‘\.

the National

Office,

which we will expedite.

_

10689

.

cc :NER:MIC:DET:TL-N-3211-99

page 2

FACTS

submitted

a Form

On or about

---- ----- ------- the taxpayer

2553, Election

by- -- -------- -------ess Corporation

to the Internal

Ohio (the Service Center).

By

Revenue Service at Cincinnati,

the

letter

dated

---- ----- ------- the Service Center notified

taxpayer

that ------- ------- ---s incomplete

and could not be processed

until

additional

information

was provided.

The taxpayer

proceeded to provide

the additional

information

requested

by the

In a letter

dated

------------- ----- -------- the

Service Center.

taxpayer

was informed by the Chief,

-------------------- --anch that

its request for an accounting

period with a ----- --- year-end was

denied due to the fact that it had not establi------a "business

regulations.

purpose" as defined by the applicable

submitted

On or about

------------- ----- -------- the taxpayer

--- -- -mall Business Corporation

to

another Form 2553, ----------the Service Center with information

to establish

a "business

regulations.

purpose" as defined by the applicable

On -------- --------- the Service Center issued a letter

to the taxpayeraccepting

the taxpayer's

election

to be treated

as an S

corporation

with a ----- ---- fiscal

year-end.

I

/

i

On --------- -------- the Service Center issued a second

------------- --- letter

dated

------- ----- ------- which

letter,

granting

the taxpayer's

election

excep-- ------ --- --------ed

for a

fiscal

year-end of ------------- ---.

On -------- ----- ------- the taxpayer

wrote a letter

to t---- ---------- Center --- ------------ discrepancy.

Included

in the taxpayer's

letter

was the proviso

that if the

Service has not granted a ----- --- fiscal

year-end,

the taxpayer

The Service Center responded by

will

operate as C corporatio---------which indicated

that the

letter

dated

------------- ----The taxpayer

was

taxpayer's

fis--------------- ------ -ndeed ----- ---not informed of an issue with regard t-- ---- accounting

period

until

it was discovered

by a routine

field

audit conducted by the

Michigan District

Examination

Division.

The taxpayer

has been operating

with a fiscal

year-end of

----- ---- for more than 10 years and continues

to the present day to

The taxpayer believes

----------- with a fiscal

year end of ----- ---it reasonably

relied

on the Service- --------r and disagrees

with the

Service's

proposed adjustment

which is in excess of

--- --------dollars

and which is based solely on the change in a------------period issue.

.

CC:NER:MIC:DET:TL-N-3211-99

(

page 3

ANALYSIS

Internal

Revenue Code section

444(a) allows S corporations

to elect a taxable

year other than the required

taxable

year.

Revenue Procedure 87-32 provides

current

guidelines

for when S

corporations

may elect a taxable year other than the required

taxable

year as well as the current

format for taxpayers

to

follow

when electing

an alternative

taxable year.

At the time the taxpayer

submitted

its election,

Revenue

Revenue Rule 83-25 provides

that,

Ruling 83-25 was applicable.

“those corporations

who make or will make an election

to be an S

corporation

and who desire to adopt, retain,

or change a tax year

a statement

. . . to their

S corporation

election

. . . should attach

setting

forth

the business purpose for the desired tax year.

These requests

will

be forwarded by the Service Centers to the

National

Office

for consideration."

The facts appear to indicate

Upon reasonable

that the taxpayer

complied.with

this provision.

assurance that it was granted a ----- ---- fiscal

year-end,

the

taxpayer

proceeded to conduct its- -------using a ----- --- fiscal

year-end.

It appears that the taxpayer complied with the provisions

then applicable

to obtaining

a ----- --- fiscal

year-end and also

took reasonable

steps to ensure ------ its conduct was sanctioned

At the very least,

it appears that the taxpayer

by the Service.

acted in a manner consistent

with the spirit

of the applicable

provisions

and therefore

should not be taken to task more than 10

years later

for its good-faith

reliance

the Service's

representations.

Based on the facts and circumstances

of this case, the

taxpayer

should be permitted

to retain

a ----- ---- fiscal

year-end

for the subject

years and be required

to -------a ----- ---- fiscal

year-end

for all future

years under current

guideline--(313)

Questions

226-2052.

or comments may be directed

to the undersigned

PHOEBEL. NEARING

DistrictAniel

Attorney

Attachments

As stated

f

at