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Inappropriately Signed Return Keeps Statute of Limitations Open.
(Parker's Federal Tax Bulletin: June 7, 2013)

The three-year statute of limitations period remained open because the taxpayer's Form 990 was not signed by one of the taxpayer's corporate officers and thus was not a valid return. Chapman Glen Limited v. Comm'r, 140 T.C. No. 15 (5/28/13).

In 1998, Chapman Glen Limited (Chapman Glen) was a foreign insurance company. It elected under Code Sec. 953(d) to be treated as a domestic corporation for U.S. federal income tax purposes. Chapman Glen also applied for and was granted tax-exempt status as an insurance company effective January 1, 1998.

For 2003, Chapman Glen filed a Form 990, Return of Organization Exempt From Income Tax, that, while signed by a return preparer, was not signed by one of its corporate officers, as was required. The IRS ultimately determined that Chapman Glen was not an insurance company and did not qualify as a tax-exempt organization. Chapman Glen agreed with this and in April 2006, the individual acting as Chapman Glen's secretary and treasurer, signed Form 6018-A, Consent to Proposed Action, consenting to the IRS's revocation of Chapman Glen's tax exemption as of January 1, 2002.

In 2009, three years after Chapman Glen consented to the IRS's revocation of its tax-exempt status, the IRS determined that (1) Chapman Glen's election was terminated in 2002 because it failed to qualify as an insurance company in that year, and (2) Chapman Glen was therefore deemed under Code Secs. 354, 367, and 953(d)(5) to have sold its assets on January 1, 2003, in a taxable transaction. Chapman Glen's primary asset on January 1, 2003, was its investment in a disregarded entity that owned various pieces of real property. Chapman Glen argued that the statute of limitations precluded the IRS from making these adjustments.

The Tax Court held that the three-year statute of limitations period remained open as to 2003 because Chapman Glen's Form 990 was not a valid return in that it was not signed by one of Chapman Glen's corporate officers. According to the court, Chapman Glen properly elected under Code Sec. 953(d) to be treated as a domestic corporation, and the termination of that election in 2002 resulted in Chapman Glen's making a taxable exchange under Code Secs. 354, 367, and 953(d)(5) during a one-day tax year beginning and ending on January 1, 2003. The Tax Court also held that the disregarded entity's real property was includible in that taxable exchange, and the court determined the fair market value of the real property.

For a discussion of the statute of limitation rules, see Parker Tax ΒΆ260,130.

Staff Editor Parker Tax Publishing


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