                         T.C. Memo. 1998-328



                       UNITED STATES TAX COURT



                   EMIL FANKHAUSER, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 11192-95.               Filed September 21, 1998.



       Kenneth J. Freeman, for petitioner.

       Carol A. Szczepanik, for respondent.


               MEMORANDUM FINDINGS OF FACT AND OPINION


       CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.    Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year 1993.    Rule

references are to the Tax Court Rules of Practice and Procedure.
     Respondent determined a deficiency in petitioner's 1993

Federal income tax in the amount of $4,422, an addition to tax

under section 6651(a) in the amount of $3, and an accuracy-

related penalty under section 6662(a) in the amount of $884.

     The issues for decision are:   (1) Whether petitioner is

entitled to a deduction for a loss from an S corporation; and

(2) whether the understatement, if any, of tax required to be

shown on petitioner's 1993 Federal income tax return was due to

his negligence or disregard of rules or regulations.   The

resolution of the first issue depends upon whether a valid S

corporation election was filed by the corporation to which the

loss is attributable.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

Petitioner filed an untimely Federal income tax return for the

year 1993, on May 6, 1994.   At the time the petition was filed,

he resided in Westlake, Ohio.

     In 1992 petitioner established and incorporated under Ohio

law Fankhauser Management, Inc. (Management).   Petitioner was the

sole shareholder of Management during all relevant periods.

Management was formed in order to operate a teenage activity

center.   Although there is conflicting evidence on the precise

date, it appears that the business of Management began in January

1993.
     On January 8, 1993, petitioner met with John Herman, a

certified public accountant, in Mr. Herman's office.   On behalf

of Management, Mr. Herman had prepared and signed a Form SS-4,

Application for Employer Identification Number.   Mr. Herman also

prepared a Form 2553, Election by a Small Business Corporation,

that was signed by petitioner in his capacity as a consenting

shareholder and president of Management.   The Form 2553 listed

the effective date of the election to be January 2, 1993.     Mr.

Herman placed both forms in an envelope addressed to respondent's

Cincinnati Service Center (the service center) and gave the

envelope to petitioner.

     Mr. Herman prepared a Form 1120S, U.S. Income Tax Return for

an S Corporation, on behalf of Management for the year 1993.

After accounting for various items of income and deductions, the

return reflected an ordinary loss from business activities in the

amount of $16,843.   The return was received by the service center

on March 10, 1994.   In a letter dated April 14, 1994, Management

was notified by the service center that the return could not be

processed because the Internal Revenue Service had no record of

Management's election to be treated as an S corporation.     The

letter invited Management to forward certain information in order

to verify that a timely S corporation election had been filed.

     Mr. Herman responded to the letter from the service center

in a letter dated May 11, 1994.   In his letter Mr. Herman

indicated that the Management's S corporation election was
filed with the service center at the same time that the Form SS-4

was mailed.    A copy of the previously prepared Form 2553 was

enclosed with this letter.    Mr. Herman also forwarded a letter

dated May 9, 1994, that was prepared by petitioner, as president

of Management, in response to the letter from the service center.

In that letter petitioner represented that the Form 2553 was

filed at the same time that the Form SS-4 was filed.

     Respondent's records do not indicate that a Form 2553 was

received from Management during 1993 with respect to that year.

The records do acknowledge that such a form was received on

May 17, 1994, but the application was denied.    It appears that

the reference in respondent's records to the Form 2553 received

in 1994 relates to the copy forwarded to the service center by

Mr. Herman with his letter dated May 11, 1994.

     The copy of the Form SS-4 received on behalf of Management

and retained by respondent indicates that the document was

transmitted to the service center via facsimile (fax) on January

14, 1993.    Respondent permits such applications to be made by

fax, and an employer identification number was assigned to

Management.    Forms 2553 transmitted to respondent by fax are not

processed.

     On a Schedule E included with his 1993 Federal income tax

return, petitioner claimed a $16,843 loss attributable to

Management.    In the notice of deficiency, respondent disallowed
the entire loss and provided the following explanation for the

disallowance:

     Since we have no record of a valid Small Business
     Election filed on Form 2553 to elect sub-chapter S, the
     loss claimed on your Form 1040 has been disallowed for
     1993.

Respondent further determined that petitioner was liable for the

addition to tax under section 6651(a)(1) because his 1993 return

was filed late, and that petitioner was liable for the negligence

penalty under section 6662(a).

                                 OPINION

Management's S Election

     The dispute between the parties focuses upon whether

Management made a timely election to be treated as an S

corporation.    See sec. 1362.   If so, then petitioner properly

claimed a loss attributable to Management on his 1993 Federal

income tax return.    See sec. 1366.   If not, then respondent

properly disallowed the loss so claimed.

     An election to be treated as an S corporation must "be made

in such manner as the Secretary shall by regulations prescribe."

Sec. 1377(c).    Pursuant to section 1.1362-6(a)(2), Income Tax

Regs., a corporation elects under section 1362(a) to be treated

as an S corporation by filing a Form 2553.     Generally, a document

is considered filed with the Internal Revenue Service when it is

received by that agency.    United States v. Lombardo, 241 U.S. 73,

76 (1916).
     Direct evidence of actual receipt of a document by the

Internal Revenue Service, however, is not always necessary in

order to effectuate its filing.    We have held that proof that a

document was properly mailed gives rise to a presumption that the

document was delivered to, and received by, the person to whom it

was addressed.   Estate of Wood v. Commissioner, 92 T.C. 793, 798

(1989), affd. 909 F.2d 1155 (8th Cir. 1990).    This presumption of

delivery can operate as a substitute for direct evidence of

actual receipt with respect to the filing of a document in

situations where the taxpayer can establish that the document has

been properly mailed, but the Internal Revenue Service denies

having received the document.

     Furthermore, with respect to certain documents, including

Forms 2553, proof that the envelope that contained the document

was properly addressed and sent by registered mail or certified

mail constitutes prima facie evidence that the document was

delivered and therefore filed.    Sec. 7502(c); sec. 301.7502-

1(d)(1), Proced. & Admin. Regs.

     In situations where the Commissioner denies receipt of a

document, the Court of Appeals for the Sixth Circuit, to which an

appeal in this case lies, has held that section 7502(c) provides

the exclusive means for a taxpayer to establish that the document

has been mailed and thereby filed.    See Carroll v. Commissioner,

71 F.3d 1228 (6th Cir. 1995), affg. T.C. Memo. 1994-229; Surowka

v. United States, 909 F.2d 148 (6th Cir. 1990); Miller v. United
States, 784 F.2d 728 (6th Cir. 1986) (holding that the provisions

of section 7502 supersede and extinguish the common law

presumption of delivery); accord Deutsch v. Commissioner, 599

F.2d 44 (2d Cir. 1979).   But see Anderson v. United States, 966

F.2d 487 (9th Cir. 1992); Estate of Wood v. Commissioner, 909

F.2d 1155 (8th Cir. 1990) (holding the enactment of section 7502

had no effect on the common law presumption of delivery).

     According to petitioner, when he left Mr. Herman's office on

January 8, 1993, the Forms 2553 and SS-4 were in a single

envelope addressed to the service center.   Petitioner claims that

he walked to a nearby U.S. post office and mailed the envelope.

The documents were not sent by certified or registered mail.

Petitioner argues that because respondent received and processed

the Form SS-4, respondent must have received, but misplaced or

lost, the Form 2553.

     Respondent denies having received an original Form 2553 on

behalf of Management during 1993.   Respondent kept no record to

establish whether such a form was also received by fax at the

time the Form SS-4 was; however, if so the form would not have

been processed.   Petitioner does not claim to have faxed the Form

2553 to respondent or argue that transmission by fax was an

appropriate way to file such a document.

     There are obvious inconsistencies between petitioner's

testimony and respondent's records.   Petitioner claims that he

mailed the Form SS-4 on January 8, 1993, but respondent's records
indicate the document was received by fax on January 14, 1993.

Petitioner claims that he also mailed the Form 2553 on January 8,

1993, but respondent's records indicate that no such document was

received in 1993.

     Under different circumstances, we would be compelled to

resolve these factual disputes.   However, there is no need to do

so in this case.    Because we are bound to follow the above-cited

line of cases decided by the Court of Appeals for the Sixth

Circuit, Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445

F.2d 985 (10th Cir. 1971), petitioner's testimony regarding what

he did is not so important as his testimony as to what he did not

do; that is, send the Form 2553 by certified or registered mail.

Because respondent has denied receipt of the Form 2553 in 1993,

and because petitioner did not send that form by certified or

registered mail, the form cannot be considered filed.    Carroll v.

Commissioner, supra; Surowka v. United States, supra; Miller v.

United States, supra; Deutsch v. Commissioner, supra.    Absent the

filing of a valid Form 2553, Management cannot be treated as an S

corporation for the year 1993, and petitioner is not entitled to

deduct any loss attributable to the corporation.   It follows that

respondent's adjustment in this regard must be sustained.

Negligence Penalty

     Section 6662(a) imposes a penalty in an amount equal to 20

percent of the portion of the underpayment of tax attributable to

a taxpayer's negligence or disregard of rules or regulations.
Sec. 6662(a) and (b)(1).   Negligence is defined to include any

failure to make a reasonable attempt to comply with the

provisions of the Internal Revenue Code.   Sec. 6662(c).   It is

further defined as the failure to do what a reasonable person

with ordinary prudence would do under the same or similar

circumstances.   Neely v. Commissioner, 85 T.C. 934, 947 (1985).

A taxpayer can avoid the imposition of the negligence penalty by

demonstrating that the underpayment of tax was due to reasonable

cause and that the taxpayer acted in good faith with respect to

the underpayment.   Sec. 6664(c).

     Regardless of how Management's Form 2553 was actually

transmitted to respondent, we are satisfied that petitioner, in

good faith, believed that a valid S election had been made prior

to the time that he filed his 1993 return.   Consequently, the

imposition of the section 6662(a) negligence penalty is not

warranted.

     To reflect the foregoing and a concession by petitioner,

                                    Decision will be entered

                               for respondent with respect to the

                               deficiency and the addition to tax

                               under section 6651(a) and for

                               petitioner with respect to the

                               section 6662(a) accuracy-related

                               penalty.
