In Uncategorized on 06/12/2018 at 16:33

Ronald A Caselli, 2018 T. C. Memo. 81, filed 6/12/18 (a celebrated date in these parts), is neither a waitron nor a barback or busperson, but finds he is tipped out when he tries to claim Section 45B credit for FICA his Sub S paid, when the Sub S (which had other shareholders) took deductions for the FICA payments. The Sub S employed persons who provided food and beverages on-premises and got tips, so FICA is on the table.

Ron A wants a new precedent, whereby a single shareholder can nullify the decision of the Sub S to deduct, rather than take the credit and pass it through to its shareholders, so the shareholder gets the credit. Remember, though a pass-through for income tax, when it comes to FICA/FUTA/ITW, a Sub S is an employer and a taxpayer.

Ron A says the Sub S could amend for the years at issue. Except the Sub S hadn’t.

Judge Cohen would ordinarily toss Ron A’s argument, but the question is sufficiently interesting.

“Because [Sub S] has never filed any amended returns, petitioner is essentially requesting an advisory opinion based upon a future contingency.  Normally, we would decline such a request. However, since there is little development of the law concerning section 45B in cases or otherwise, it is useful and expedient to discuss the provision and its application to the facts before us.” 2018 T. C. Memo. 81, at p. 4.

Section 45B gives the Sub S a choice; either deduct the FICA that the Sub S paid on the tips its employees got, so the taxable net for distribution to shareholders is diminished, or let credits for the FICA paid flow through to the shareholders. Obviously, the credit is a dollar-for-dollar offset against the shareholders’ personal income tax, where the deduction only results in less taxable income.

Since Ron A was dealing with $350K in fraud chops, which apparently got conceded to some extent, any direct offset to tax really helps Ron A.

So Ron wants to tip out the Sub S and take the credits himself.

“The answer seems quite straightforward.  Section 45B(c) explicitly provides that ‘[n]o deduction shall be allowed under this chapter for any amount taken into account in determining the credit under this section.’  Section 45B(d), titled ‘Election Not to Claim Credit’, further provides that ‘[t]his section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.’  In combination, these two provisions suggest that when [Sub S] chose to deduct its FICA tax payments, it had made an election not to claim any FICA tip credits.  Indeed, [Sub S] never claimed, or intended to claim, FICA tip credits….  Consequently, on the basis of [Sub S]’s reporting position, petitioner is not entitled to any flowthrough FICA tip credits…. 2018 T. C. Memo. 81, at pp. 5-6.

Ron A isn’t stiffed by the foregoing.

“Petitioner agrees that [Sub S] elected not to claim any FICA tip credits. Nonetheless, he asserts that [Sub S] now seeks to change its election and ‘may claim the FICA Tips Credit pursuant to Section 45B’ by filing amended returns.  The evidence in the record contradicts his assertion.  [Sub S] has never stated its intention to change the election it made more than nine years ago.  Petitioner’s assertion, in effect, is that [Sub S]’s election could be changed unilaterally by his request made in his capacity as a shareholder.” 2018 T. C. Memo. 81, at p. 6.

Except corporate elections get made by corporations. Especially Sub S corporations; see Section 1363(c)(1) and Reg. 1.1363-1(c)(1). Of course, there’s an exception for mining deals and for foreign tax credits, but neither plays a part here.

Even if in this one case, the other shareholders in Ron A’s Sub S wouldn’t be hurt, so it wouldn’t be unfair, Judge Cohen isn’t creating precedents.

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