Not If It Hasn’t Filed Form 8832
More of the blind-men-describe-elephant excursus around the limited liability company, the outfit with the invisible shield, is found in Heber E. Costello, LLC, Scott D. Costello, Single Member, 2016 T. C. Memo. 184, filed 9/29/16.
Leaving aside the puzzling joinder of member with LLC, more particularly bounded and described in my blogpost “An Answer You’ve All Been Waiting For,” 10/30/15, here we have unpaid FICA/FUTA.
The late Heber formed a C Corp, of which he was sole stockholder, and filed 1120s consistently. Scott D. inherited the stock, formed the LLC, merged the C Corp with the LLC, whereupon the C Corp disappeared.
This gives rise to some Section 368(a)(1)(F) reorg learning, whereby Scott D. claims the LLC is a C Corp, and therefore the LLC should pay the self-assessed but unpaid FICA/FUTA. And Scott D. kept on filing 1120s, with C Corp’s TIN, which IRS accepted every year, and never bounced. So Scott D. claims equitable estoppel.
OK, but all that misses the point.
Here’s Judge Nega to set Scott D. on the right path to liability.
“Regardless of whether the merger of [C Corp] and LLC qualified as a valid reorganization under section 368(a)(1)(F), LLC never filed Form 8832 electing its classification for Federal tax purposes as an association and thus is not a corporation but rather is disregarded as an entity separate from its owner.
“Second, an eligible entity may not elect its entity classification by filing any particular tax return it wishes; it must do so by filing Form 8832 and following the instructions within section 301.7701-3(c)(1)(i), Proced. & Admin. Regs. Thus, LLC could not elect to be treated as a corporation merely by filing corporate income tax returns.” 2016 T. C. Memo. 184, at p. 11.
Equitable estoppel against IRS is used with “utmost restraint.” And IRS needs to make a false statement of fact.
“Respondent [IRS] made no false statement to petitioner, and we do not agree that his lack of rejection of LLC’s filed Forms 1120 is a wrongful misleading silence. Moreover, Mr. Costello knew that LLC has never filed a Form 8832 to elect to be treated as anything other than a disregarded entity.” 2016 T. C. Memo. 184, at p. 12.
Now lest my ultra-sophisticated readers rise as one to shout that TFRPs are assessed and collected against LLCs as if they were corporations, Judge Nega points out that the TFRPs here involved are for tax years prior to 2009, when the current rules went into effect.
But the requirement to file Form 8832 didn’t change. And unless statute or reg otherwise provide, you don’t elect your form of business by your form of tax return.