## Facts

- Helen S. Leather owned all shares of Flexible Ink, Inc., a closely held business corporation.
- Leather, assisted by her daughter (an attorney), intended for the corporation to elect S corporation status.
- A Form 2553 was prepared and signed, and Leather’s daughter testified it was mailed using the law office’s ordinary outgoing-mail routine.
- The IRS had no record of receiving the original Form 2553 for the years at issue.
- Flexible Ink filed corporate returns as though it were an S corporation for 1986–1988, reporting operating losses.
- Leather claimed the corporation’s losses on her individual returns as pass-through S corporation losses.
- The IRS disallowed the losses and determined income-tax deficiencies of $9,227 (1986), $5,597 (1987), and $3,360 (1988).
- After the dispute arose, a new Form 2553 was submitted, received, and accepted by the IRS prospectively, but not for 1986–1988.

## Issues

1. Whether the taxpayer proved that a timely Form 2553 S corporation election was filed (and received by the IRS) for tax years 1986–1988.
2. If a timely election was proven, whether the statute of limitations barred the asserted deficiencies.

## Decision

- The Tax Court held the taxpayer did not prove a timely, valid S election for 1986–1988.
- The court rejected reliance on office mailing routine testimony without corroborating evidence and without proof of IRS receipt.
- The court refused to treat S corporation status as established merely because the corporation filed S-style returns and the shareholder reported pass-through items.
- The court sustained the Commissioner’s deficiency determinations for 1986–1988.

## Legal Principles

- An S corporation election is effective only if made in the prescribed manner, including timely filing of Form 2553 with the IRS as required by I.R.C. § 1362 and applicable rules.
- The taxpayer bears the burden to prove that an S election was properly and timely made when the IRS lacks a record of receipt.
- Habit or routine office-practice evidence of mailing, standing alone, may be insufficient to establish filing/receipt absent corroborating documentation (e.g., certified mail receipt, mailing log, or IRS-stamped copy).
- S corporation treatment cannot be created by conduct alone; filing returns as an S corporation or believing an election was made does not substitute for a valid election.

## Conclusion

The Tax Court sustained deficiencies after finding no proven timely, received Form 2553 for the years in dispute, holding that S corporation status requires a properly filed election and cannot be established solely through the parties’ reporting position or uncorroborated mailing routine testimony.


Leather v. Comm'r, 62 T.C.M. (CCH) 1087 (1991)