                        T.C. Memo. 1997-558



                      UNITED STATES TAX COURT



               GEORGE JOHNSON, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23004-92.             Filed December 22, 1997.



     Robert I. White and Shelley Cashion, for petitioner.

     Richard T. Cummings and Shelia Dansby Harvey, for

respondent.




              MEMORANDUM FINDINGS OF FACT AND OPINION

     GALE, Judge:    This case is before the Court on petitioner's

Motion for Partial Summary Judgment (petitioner's motion) and

respondent's Cross-Motion for Partial Summary Judgment

(respondent's cross-motion).   The parties have filed various
                                   - 2 -


briefs and memoranda in support of and in opposition to these

motions.    Respondent determined the following deficiencies in,

and additions to, petitioner's1 Federal income taxes:

                                           Addition to Tax
     Year             Deficiency             Sec. 6653(b)

     1979             $50,487.36             $25,243.68
     1980              52,617.33              26,308.67


     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.    For taxable year 1979, respondent determined a total

adjustment to income of $130,930.37, of which $122,975.37 was

attributed to undistributed taxable income from Johnson

Programming Services, Inc. (JPS).      For taxable year 1980,

respondent determined a total adjustment to income of

$105,430.17, of which $58,602.34 was attributed to undistributed

taxable income from JPS.    Petitioner's motion requests the Court

to rule as a matter of law that JPS was not a corporation taxable

under subchapter S of the Internal Revenue Code (S corporation).

Respondent's cross-motion requests the Court to rule as a matter




     1
       In the notice of deficiency, respondent also determined
the deficiencies (but not the additions to tax) against
petitioner's wife at the time, Mary Ann Johnson. Respondent has
agreed that Mary Ann Johnson qualifies as an innocent spouse, and
she is not a petitioner in this case.
                                - 3 -


of law that petitioner is precluded from challenging the validity

of the S corporation status of JPS.     We deny both motions.

                          FINDINGS OF FACT

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

incorporate by this reference the stipulation of facts and

attached exhibits.    At the time of filing the petition,

petitioner resided in Houston, Texas.

     Petitioner incorporated JPS on October 25, 1976, with

petitioner and his wife, Mary Ann Johnson, as directors and the

sole officers.2   Petitioner was president and Mary Ann Johnson

was secretary.    In addition to them, JPS had, at most, three

other employees during the period of 1975-77, one of whom was

petitioner’s daughter.    On November 26, 1976, which was the

Friday after Thanksgiving Day, the Internal Revenue Service

Fresno Service Center (Fresno Service Center) stamped "Received"

on the face of a Form 2553, Election by a Small Business

Corporation, listing JPS as the electing corporation.     The

parties have stipulated that it is unknown whether the Form 2553

was mailed, hand delivered, or transported by private courier to

the Fresno Service Center.



     2
       It has been alleged, and the parties do not appear to
dispute, that petitioner and Mary Ann Johnson were the only
shareholders of JPS. However, the only evidence of that
allegation currently in the record is a Form 2553, the validity
and authorship of which are disputed.
                              - 4 -


     The Form 2553 contained the following information:     JPS's

name and address, the principal business activity of JPS, the

number of shares issued, the name of a predecessor business

("Johnson Programming Services"), the date and place of

incorporation ("10-25-76 California"), and three signatures, one

apparently the signature of petitioner as president, and the

other two apparently the signatures of petitioner and Mary Ann

Johnson as shareholders consenting to the election.   The parties

have stipulated that in the opinion of respondent's handwriting

expert, there is a high degree of probability that the apparent

signature of petitioner as president of JPS is a traced

signature, and the apparent signature of petitioner as

shareholder is a simulated signature.   The parties have

stipulated that if Mary Ann Johnson were called to testify, she

would testify that the apparent signature of Mary Ann Johnson on

the Form 2553 does not appear to her to be her signature.

     On January 7, 1977, the Fresno Service Center sent a letter

accompanied by the original Form 2553 described above.     The

letter was addressed to JPS at the address listed on the Form

2553 and informed the recipient that the Form 2553 could not be

processed because the following information was missing:     The

date JPS first had shareholders; the date JPS first had assets;

the date JPS began doing business; the last month of the taxable

year for which JPS's annual return would be filed; and for each
                               - 5 -


shareholder, the shareholder's name, address, and Social Security

number, the number of shares held and the dates acquired, and the

Internal Revenue Service (IRS) office where the shareholder's

individual return would be filed.

     This letter accurately stated most of the information

missing when the Form 2553 was first received by the Fresno

Service Center, but also missing was JPS's employer

identification number and the beginning date of the taxable year

for which the election was to be effective.

     The Form 2553 was returned to the Fresno Service Center and

stamped "Received" a second time on January 12, 1977.    This time

the Form 2553 contained all of the previously missing

information.

                              OPINION

     For both petitioner's motion and respondent's cross-motion,

the normal standards of summary judgment apply.   Thus, for each

motion:   We will grant summary judgment only if there is no

genuine issue as to any material fact and a decision may be

rendered as a matter of law; the moving party has the burden to

show there is no issue of fact; and we view the facts in the

light most favorable to the party opposing the motion.    Rule

121(b); Pert v. Commissioner, 105 T.C. 370, 372 (1995).

     Petitioner's motion raises the question of whether the

election on the Form 2553 (S corporation election) was invalid as
                               - 6 -


a matter of law.   Petitioner argues that the S corporation

election was invalid and that JPS was therefore not an S

corporation during the years in issue in this case.   Respondent's

cross-motion presents the issue of whether the doctrine of duty

of consistency prevents petitioner from denying that JPS was an S

corporation during the years in issue.   We address respondent's

cross-motion first, because if respondent is correct that the

duty of consistency applies, then we must hold for respondent

even if petitioner's argument about the invalidity of the S

corporation election is correct in substance.   Thus, we turn to

an examination of the duty of consistency.

Respondent's Cross-Motion

     The Tax Court and the Court of Appeals for the Fifth Circuit

(to which an appeal in this case would lie) have adopted the

triune standard for the application of the duty of consistency.

Herrington v. Commissioner, 854 F.2d 755, 758 (5th Cir. 1988),

affg. Glass v. Commissioner, 87 T.C. 1087 (1986); Estate of Letts

v. Commissioner, 109 T.C. ___ (1997); Cluck v. Commissioner, 105

T.C. 324, 332 (1995).   The following elements must be present for

the duty of consistency to apply:

     (1) a representation or report by the taxpayer; (2) on
     which the Commissioner has relied; and (3) an attempt
     by the taxpayer after the statute of limitations has
     run to change the previous representation or to
     recharacterize the situation in such a way as to harm
     the Commissioner. * * *
                                 - 7 -


Herrington v. Commissioner, supra at 758 (citing Beltzer v.

United States, 495 F.2d 211, 212 (8th Cir. 1974)); see also Cluck

v. Commissioner, supra at 332.    If all of the elements are

present, the Commissioner may act as though the previous

representation is true, even if it is not, because the taxpayer

is prevented from denying its truth.     Herrington v. Commissioner,

supra at 758.

     With respect to the first element of the duty of

consistency, respondent alleges that petitioner made

representations to respondent that JPS was an S corporation.    In

particular, respondent alleges that the initial representation

occurred when petitioner filed the Form 2553 electing S

corporation status, and that petitioner engaged in subsequent

representations during taxable years 1977-80 by causing JPS to

file tax returns as an S corporation (Forms 1120-S), and by

including pass-through income and loss from JPS on his tax

returns (Forms 1040) for the years in issue.    We first note that

the record contains no Forms 1120-S filed by JPS and no Forms

1040 filed by petitioner.   Thus, there is no evidence in the

record with respect to those forms from which we can make a

factual determination as to any representation by petitioner; we

have only respondent's allegations on brief, which petitioner
                                   - 8 -


addresses in an affidavit.3      Summary judgment cannot be granted

on the basis of allegations of fact in respondent's brief, even

if petitioner were to fail to controvert the allegations.       See

Smith v. Commissioner, T.C. Memo. 1983-706.

       With respect to the Form 2553, there also remains a question

of fact as to whether the Form 2553 was a representation made by

petitioner.       Respondent concedes that the apparent signatures of

petitioner were not affixed by him.        On the other hand,

respondent's handwriting expert did not examine the apparent

signature of Mary Ann Johnson, and respondent makes no concession

with respect to that signature.      In any event, respondent argues

that petitioner authorized the signatures or otherwise allowed

the Form 2553 to be filed and subsequently supplemented, and that

such acts of authorization or allowance constitute a

representation for purposes of the duty of consistency.

Petitioner has filed an affidavit stating that the signatures

that were apparently his on the Form 2553 were not authorized by

him.       We find that petitioner's affidavit is sufficient to raise



       3
       In his second affidavit, petitioner asserts that his joint
tax returns for the years in issue were prepared by accountants
and presented to him for signature. Petitioner also asserts that
the corporate returns for JPS were prepared by accountants and
presented to him for signature, and that decisions to use Form
1120S rather than 1120 were made by accountants. He further
asserts that he did not know the difference between a C
corporation and an S corporation prior to or during the years in
issue.
                                 - 9 -


a genuine issue of material fact as to whether petitioner

authorized the signatures or allowed the Form 2553 to be filed.

     Because there remain genuine issues of material fact as to

whether petitioner made representations to respondent with

respect to the S corporation status of JPS, we will deny

respondent's cross-motion.    We next turn to petitioner's motion.

Petitioner's Motion

     Petitioner's motion asks us to hold that JPS was not an S

corporation during the years in issue because no valid S

corporation election was made.    Each party argues that the other

has the burden of proof with respect to the validity of JPS's

election of S corporation status.    However, the allocation of the

burden of proof depends on why the issue of JPS's status as an S

corporation is being raised.    Insofar as respondent's deficiency

determination is premised upon JPS's S corporation status,

petitioner has the burden of overcoming the presumption of

correctness of the notice of deficiency.    Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933); Kale v. Commissioner, T.C.

Memo. 1996-197.    To meet that burden, petitioner must

affirmatively demonstrate the invalidity of the S corporation

election by JPS.    Poulter v. Commissioner, T.C. Memo. 1967-220,

affd. per curiam 397 F.2d 415 (4th Cir. 1968).    Conversely, if

JPS's S corporation status is a necessary component of an issue

on which respondent bears the burden of proof, such as fraud,
                               - 10 -


respondent has the burden of demonstrating the validity of JPS's

S corporation election.

     Deficiencies

     We turn to the deficiency determinations, on which

petitioner bears the burden.   Petitioner challenges the validity

of the S corporation election on three grounds:   (1) That the

signatures on the Form 2553 were forgeries that were not

authorized by petitioner or Mary Ann Johnson; (2) that when the

Form 2553 was stamped "Received" by the Fresno Service Center on

November 26, 1976, it was untimely; and (3) that when the Form

2553 was stamped "Received" on November 26, 1976, it was not

complete enough to be a valid election, and when it was stamped

"Received" a second time on January 12, 1977, in more complete

form, it was untimely.

     With respect to the signatures, respondent contends that

petitioner is precluded from challenging the validity of the S

corporation election based on irregularities in the Form 2553

that were not detectable by respondent.   Since nothing on the

face of the Form 2553 as submitted indicated irregularities in

the signatures, petitioner should be precluded from later

challenging the validity of the election on the basis of the

signatures, respondent argues, lest taxpayers be given license to

"work both sides of the street" as suits their interests.   Fully

articulated, respondent's theory is that both taxpayers and the
                               - 11 -


Government may challenge an S corporation election on the basis

of defects that are apparent on the face of the Form 2553, but

only the Government may challenge an election on the basis of

defects that are not facially apparent.   Respondent's theory

represents an effort to distinguish our opinion in Smith v.

Commissioner, T.C. Memo. 1988-18, where we accepted a taxpayer's

challenge to an S corporation election, although it was based on

a facially apparent defect (absence of any signature of an

officer authorized to elect for the corporation).   Also, in Levy

v. Commissioner, 46 T.C. 531 (1966), we found an S corporation

election invalid on the basis of a defect that was not facially

apparent (Form 2553 signed by corporate officer where actual

authority to sign resided with bankruptcy trustee), albeit at the

behest of the Government.   However, we find nothing in Smith,

Levy, or any of the other cases cited by respondent to suggest

that the identity of the challenger, or the status of the Form

2553 defect as facially apparent or not apparent, was important

to the result.    We accordingly reject respondent's contention and

permit petitioner's challenge of the S corporation election in

this case, whether or not based on facially apparent defects in

the Form 2553.4

     4
       It is worth noting, however, that in Smith v.
Commissioner, T.C. Memo. 1988-18, where a taxpayer's challenge of
an S corporation election was sustained, the question of whether
the taxpayer should nonetheless be estopped from denying the S
                                                   (continued...)
                              - 12 -


     Petitioner first argues that the signatures on the Form 2553

were forgeries, and that the Form 2553 was therefore invalid

because there was no validly executed election of S corporation

status by an authorized officer and no validly executed

shareholder consents.   As noted above, respondent concedes that

the apparent signatures of petitioner were not affixed by him but

makes no concession with respect to the apparent signature of

Mary Ann Johnson.   More importantly, respondent argues with

respect to both signatures that they were authorized by

petitioner and Mary Ann Johnson, and therefore that they were

valid.   An authorized signature is in certain circumstances

treated as equivalent to an actual signature.   Miller v.

Commissioner, 237 F.2d 830 (5th Cir. 1956), affg. in part and

revg. in part T.C. Memo. 1955-112; Booher v. Commissioner, 28

T.C. 817 (1957); Tompkins v. Commissioner, T.C. Memo. 1989-363;

cf. Lefebvre v. Commissioner, 758 F.2d 1340 (9th Cir. 1985),

affg. T.C. Memo. 1984-202; United States v. Ponder, 444 F.2d 816,

822 (5th Cir. 1971); secs. 1.6061-1, 1.6012-1(a)(5), Income Tax

Regs.; sec. 1.6061-2T, Temporary Income Tax Regs., 58 Fed. Reg.

4080 (Jan. 13, 1993).

     Respondent alleges that petitioner and Mary Ann Johnson

authorized the signatures on the basis of the fact that JPS had a

     4
      (...continued)
corporation status of the corporation was expressly reserved for
later disposition. Id. n.4.
                                - 13 -


small number of employees so that no one else had access to an

actual signature to trace or simulate; the fact that the Form

2553, when returned to the JPS address for additional

information, was promptly resubmitted with extensive details

concerning JPS; and the fact that petitioner was in charge of

financial operations.    Petitioner puts considerable weight on his

affidavit, in which he declares that he did not authorize anyone

to sign his name.    We need not accept a taxpayer's self-serving

testimony as gospel.     Tokarski v. Commissioner, 87 T.C. 74, 77

(1986); Three G Trading Corp. v. Commissioner, T.C. Memo. 1988-

131 (declining to accept self-serving testimony in a summary

judgment case).     On the other hand, we may not merely rely on

factual assertions in respondent's brief, which are not

sufficient to defeat petitioner's motion.     Smith v. Commissioner,

T.C. Memo. 1983-706.    In this case, however, the scenario that

respondent suggests on brief is sufficiently plausible, given the

facts in the record, for us to find that petitioner has not made

a prima facie showing of the absence of a factual issue.    The

Form 2553 itself reflects preparation by someone with

considerable information concerning JPS's affairs.    Therefore,

respondent need not come forth with affidavits or other

documentary evidence to refute petitioner's position.     Abramo v.

Commissioner, 78 T.C. 154, 163-164 (1982); Rosberg v.

Commissioner, T.C. Memo. 1988-267. We find that there is a
                               - 14 -


genuine issue of material fact as to whether the signatures were

authorized by petitioner and Mary Ann Johnson.    Accordingly,

petitioner is not entitled to a summary ruling, based on invalid

signatures, that JPS failed to make a valid S corporation

election.

     Petitioner next argues that the Form 2553 was untimely filed

and that, as a result, JPS was not a valid S corporation during

the years in issue.    To decide whether an S corporation election

was timely, we look to the law in effect at the time the election

was purportedly made.    See Smith v. Commissioner, T.C. Memo.

1988-18.    The parties agree that under the Code and regulations

in effect in 1976, the Form 2553 had to be filed on or before

November 24, 1976, the day before Thanksgiving, in order to be

timely.5    Under the Code and regulations in effect in 1976, a new

corporation, in order to elect S corporation status from its

inception, had to make the election during the first month of the

corporation's taxable year.6    The first month of JPS's taxable

     5
       Petitioner cursorily raises the argument that JPS began
doing business as early as Oct. 4, 1976, and that the first month
of JPS's first taxable year therefore ended Nov. 3, 1976, but
provides no authority for this contention. However, elsewhere in
his brief, petitioner concedes that the last day for filing the
Form 2553 was Nov. 24, 1976. See infra note 7.
     6
         Sec. 1372(c), as in effect for 1976, provides as follows:

     An election under subsection (a) may be made by a small
     business corporation for any taxable year at any time
     during the first month of such taxable year, or at any
                                                   (continued...)
                               - 15 -


year was the period from October 25 through November 24, the day

before Thanksgiving.7    Thus, the election had to be made on or

before November 24, 1976, in order to be timely.8

     As previously noted, a presumption of correctness attaches

to respondent’s notice of deficiency, necessarily including, in



(...continued)
     time during the month preceding such first month. Such
     election shall be made in such manner as the Secretary
     shall prescribe by regulations.

Obviously, a corporation could not elect S corporation status in
the month preceding its first month of existence.
     7
         The regulations provide:

     In the case of a new corporation whose taxable year
     begins after the first day of a particular month, the
     term "month" means the period commencing with the
     beginning of the first day of the taxable year and
     ending with the close of the day preceding the
     numerically corresponding day of the succeeding
     calendar month * * *. [T]he first month of the taxable
     year of a new corporation does not begin until the
     corporation has shareholders or acquires assets or
     begins doing business, whichever is the first to occur.

Sec. 1.1372-2(b)(1), Income Tax Regs. (1976). JPS was not
incorporated until Oct. 25, 1976. The regulation quoted above
refers to the first month of the taxable year of the corporation,
and there was no corporation in existence prior to Oct. 25.
Thus, the first month of JPS's taxable year could not have begun
prior to Oct. 25. At the same time, respondent does not dispute
that JPS either had shareholders, had acquired assets, or began
doing business as of Oct. 25. Accordingly, for purposes of
petitioner's motion we treat Oct. 25 as the beginning of the
first month of JPS's first taxable year.
     8
       There is no evidence or allegation of any other elections
or Forms 2553 besides the one under discussion here. In
particular, there is no evidence that other Forms 2553 were filed
during the first or last month of any of JPS's taxable years.
                             - 16 -


the case of a determination of the receipt of S corporation

income, the timely filing of a valid S corporation election.

With respect to timeliness, the parties have stipulated that the

Form 2553 was stamped "Received" on November 26, 1976.   This

fact, coupled with the presumption of correctness of the notice

of deficiency, entitles respondent to the presumption that the

Form 2553 was timely by operation of section 7502, which deems a

late delivered document to be filed on the date of the U.S.

postmark in certain circumstances.    Thus, in order to rebut this

presumption, petitioner has the burden of proving that the Form

2553 was either postmarked untimely or not mailed at all; i.e.,

transported by private courier or hand delivered.   Petitioner

cannot show this, however, because the parties have stipulated

that it is unknown whether the Form 2553 was mailed, transported

by private courier, or hand delivered.   Therefore, petitioner is

not entitled to a summary ruling, based on the untimely filing of

the Form 2553, that JPS failed to make a valid S corporation

election.

     Finally, petitioner argues that the Form 2553, as stamped

"Received" on November 26, 1976, was so incomplete that it failed

to constitute a valid S corporation election, and that the form

as subsequently supplemented and resubmitted pursuant to the

Fresno Service Center's request of January 7, 1977, was untimely.

Respondent argues that the Form 2553 was sufficiently complete
                              - 17 -


when first received, for two reasons:   First, respondent argues

that all that is required for a Form 2553 to be sufficiently

complete is the signature of the authorized officer and the

consent of the shareholders, citing Thompson v. Commissioner, 66

T.C. 737 (1976); Brutsche v. Commissioner, 65 T.C. 1034 (1976),

revd. on other grounds and remanded 585 F.2d 436 (10th Cir.

1978); Garrett & Garrett, P.C. v. Commissioner, T.C. Memo. 1993-

453; and Leve v. Commissioner, T.C. Memo. 1985-255.   Second,

respondent argues that the second submission of the Form 2553

demonstrated the validity of the original submission, permitting

the original submission to be treated as complete and valid.

With respect to the first argument, respondent concededly has

found no case in which the election form was incomplete in

content in exactly the same respects as the one at issue in this

case.   However, petitioner has not cited any case where a Form

2553 was found ineffective on the basis of something other than

the absence of valid signatures of an authorizing corporate

officer or consenting shareholders, or untimeliness of filing.

In any event, we need not decide whether the signature of the

authorized officer and the consent of the shareholders are

sufficient in all cases; rather, as discussed below, we hold that

in the circumstances of this case, petitioner is not entitled to

a summary adjudication that the Form 2553 was too incomplete to

be considered valid.
                               - 18 -


     As respondent points out, it was not apparent on the face of

the Form 2553 as first received whether it constituted a valid

election.   The original submission of the Form 2553 contained two

signatures (the apparent signatures of petitioner and Mary Ann

Johnson) purporting to be shareholder consents; nonetheless, the

Fresno Service Center would have been unable to determine whether

all of the shareholders had consented to the S corporation

election, because the original submission did not list the names

of the shareholders.    Further, the Fresno Service Center would

have been unable to determine whether the election was timely,

because the original submission did not contain the date JPS

first had shareholders, the date JPS first had assets, or the

date JPS began doing business.    See supra note 7.    None of this

information was "readily available to respondent by a cursory

review of the rest of" the Form 2553, as in Leve v. Commissioner,

supra.   The Fresno Service Center solicited more information,

respondent argues, in an effort to determine whether the original

submission was valid.    The second submission contained sufficient

information from which the Fresno Service Center could determine

whether or not all the shareholders had consented to the election

on the original submission and whether or not the original

submission was a timely election.9      We conclude that, given the

     9
       In Garrett & Garrett, P.C. v. Commissioner, T.C. Memo.
1993-453, the taxpayer twice submitted a Form 2553, with the
                                                   (continued...)
                             - 19 -


particular circumstances of this case, petitioner is not entitled

to a summary ruling, based on the incompleteness of the Form

2553, that JPS failed to make a valid S corporation election.

     Fraud

     As noted earlier, insofar as JPS's S corporation status is a

necessary component of an issue on which respondent bears the

burden of proof, such as fraud, respondent would have the burden

of demonstrating the validity of JPS's S corporation election.

Respondent would be unable to carry this burden, because he would

be unable to show that the Form 2553 was timely, given the

stipulations: (1) That the Form 2553 was stamped "Received" on

November 26, 1976 (2 days after the last day for filing the

Form), and (2) that it is unknown whether the Form 2553 was

mailed, transported by private courier, or hand delivered.

(Thus, respondent would not be able to demonstrate timely filing

on the basis of section 7502.)   However, respondent need not rely

on JPS's S corporation status to prove fraud in this case,

because he has determined other underpayments not related to S

corporation income from JPS, and proof that some part of any of

these other underpayments was due to fraud would suffice to

establish the fraud penalty with respect to the entire

     9
      (...continued)
second submission much more complete than the first, but in that
case the first submission did not contain any signatures
representing shareholder consents and was therefore invalid.
                              - 20 -


underpayment.   Therefore, it is potentially irrelevant whether

respondent can prove fraud with respect to the JPS S corporation

income and likewise irrelevant whether respondent can prove the S

corporation election was valid.   As a result, we do not believe

petitioner has demonstrated that he is entitled to summary

adjudication of this issue.

     Accordingly, for the reasons set out above, we will deny

petitioner's motion.

     To reflect the foregoing,


                                       An appropriate order will

                                  be issued.
