Late S corp. return not an income disclosure despite reference in stockholder's form 1040.

• Author: Richard, Fultz

In Chief Counsel Advice (CCA) 201333008, the Office of Chief Counsel has advised that information in a late-filed Form 1120S, U.S. Income Tax Return for an S Corporation, "should be treated like information found in an amended return and disregarded" for purposes of determining the individual's disclosure of income in the timely filed Form 1040, U.S. Individual Income Tax Return, even though the S corporation return is referenced in that Form 1040.

Facts

In the CCA, the taxpayer filed a Form 1040 in year 1 showing a certain amount of income from the S corporation. More than three years after the filing of the Form 1040, and after the ordinary three-year period to assess had expired, the S corporation filed a Form 1120S revealing that the taxpayer's distributive share of S corporation income exceeded 125% of the sum reported on the taxpayer's individual return for the tax year (Form 1040).

When an individual's return contains a reference to other documents or returns, those referenced items can serve as notice to the IRS. However, for a Form 1120S to be read as incorporated by reference in a taxpayer's return, the Form 1120S must be in existence and in the IRS's possession when the taxpayer's return is filed. When a Form 1120S is not filed until after the taxpayer's Form 1040, the late Form 1120S should be treated like information found in an amended return and disregarded for disclosure purposes under Sec. 6501(e).

In support of this position, the Office of Chief Counsel cited Insulglass Corp., 84 T.C. 203 (1985), in which the Tax Court determined that information the IRS discovered during an audit should be treated as information filed on an amended return. The Tax Court in Insul-glass found support in Houston, 38 T.C. 486 (1962), which held that a taxpayer's filing of an amended return that includes in income amounts that had been omitted from the original return does not prevent the IRS from invoking the six-year period, based upon the omission from the original return, even though the amended return disclosed the previously omitted items.

Delinquent Form Is Not a Disclosure for Sec. 6501(e) Purposes

The timing of the disclosure is paramount. Gross income is disclosed within the meaning of Sec. 6501(e)(1)(B)(ii) only if the information necessary to place the IRS on notice of the nature and amount of gross income from the item is in the possession of the IRS when the return is filed.

The Office of Chief Counsel used the procedures...