95 T.C. 74 (1990)
WILLIAM M. HANG AND DEBORAH S. HANG AND DAVIDAN ORTHODONTIC LAB, INC., DAVID R. HAMG, TAX MATTERS PERSON, DEBORAH S. HANG, GUARDIAN AND DANIEL W. HANG, A PERSON OTHER THAN THE TAX MATTERS PERSON, Petitioners
COMMISSIONER OF INTERNAL REVENUE, Respondent
United States Tax Court
July 18, 1990
Respondent issued Final Notices of S Corporation Administrative Adjustment (FSAA) for 1984 and 1985 in which he reallocated income of an S corporation from the shareholders of record to H, who is not a shareholder of record. Petitioners moved to dismiss and/or for partial judgment on the pleadings with respect to the reallocations for 1984 and 1985. HELD, the reallocation of a subchapter S item from shareholders of record to a taxpayer who is not a shareholder of record is not within the scope of judicial review in an S corporation proceeding.
Charles T. Shea and Dennis R. Pearson, for the petitioners.
Mary P. Hamilton and Ronald F. Hood, for the respondent.
This case is before us on petitioners' motion to dismiss and/or for partial judgment on the pleadings. Respondent issued Notices of Final S Corporation Administrative Adjustment (FSAA) for the S corporation returns of Davidan Orthodontic Lab, Inc., (Davidan) for the taxable years 1984 and 1985. Respondent made no adjustment to ordinary income for Davidan for either 1984 or 1985. However, respondent determined that for Federal tax purposes, the beneficial owner of Davidan for 1984 and 1985 was William M. Hang. Respondent allocated income in the FSAA's as follows:
|| Per return
|| As corrected
|| Per return
|| As corrected
Petitioners argue that to the extent that the FSAA's attempt to reallocate the taxable income of Davidan to William Hang, the FSAA's are invalid because the attempted reallocation is not a ‘ subchapter S item‘ as defined in section 6245 
and section 301.6245-1(a), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 3003 (Jan. 30, 1987). Petitioners also argue that the FSAA s were invalid for taxable years 1984 and 1985 because Davidan was a small S corporation for those years and therefore not subject to the S corporation audit and litigation procedures. Respondent contends that because ordinary income of an S corporation and distributions from an S corporation are subchapter S items, the proposed reallocation is within the scope of judicial review in an S corporation proceeding Page 76
under section 6226(f). See sec. 6244. Respondent also contends that Davidan was not a small S corporation for 1984 and 1985 because there were two shareholders of record for those years. We must decide (1) whether the reallocation of income from David and Daniel Hang to William Hang is within the scope of judicial review in an S corporation proceeding; and, if so, (2) whether Davidan was a small S corporation in 1984 and 1985. A hearing was held on petitioners' motion on March 12, 1990, in Boston, Massachusetts. Petitioners William and Deborah Hang are husband and wife, and are the parents of petitioners David and Daniel Hang, who are minors. William M. Hang is an orthodontist. Davidan is a subchapter S corporation whose two record shareholders are David and Daniel Hang. Deborah S. Hang is the legal guardian of David and Daniel Hang. Respondent issued a statutory notice of deficiency to William and Deborah Hang on February 10, 1989. In the notice of deficiency, respondent determined that William and Deborah Hang had unreported income from Davidan in the amounts of $16,317 in 1983, $13,758 in 1984, and $18,436 in 1985. The notice of deficiency also allowed as investment tax credits in 1983 certain amounts previously claimed as carrybacks to 1980. The resulting deficiencies were as follows:
Respondent also issued FSAA's with respect to Davidan for the tax years ending October 31, 1984, and October 31, 1985, reallocating the income of Davidan to William M. Hang, as follows: 1. On March 3, 1989, an FSAA was issued to David R. Hang, Tax Matters Person, c/o Deborah Hang, Guardian, for the taxable year ending October 31, 1984. 2. On April 11, 1989, an FSAA was issued to Daniel W. Hang and Douglas K. Siebert for the taxable year 1984. Page 77
3. On March 3, 1989, an FSAA was issued to Tax Matters Person, Davidan Orthodontic Lab, Inc., c/o Deborah Hang, for the taxable year ending October 31, 1985. 4. On April 4, 1989, an FSAA was issued to Daniel W. Hang and Douglas K. Siebert for the taxable year 1985. Petitioners timely filed a petition in this Court in which they requested a redetermination of the tax deficiencies set forth in the notice of deficiency issued to William and Deborah Hang, and a readjustment of the reallocation of...