Attorney-at-Law

CREWS’ EXEMPTION

In Uncategorized on 05/09/2019 at 16:49

Even though Judge Tamara Ashford follows counsels’ lead in calling it the “crewmen’s exemption,” I’ll jump headlong into the Twentieth Century (if not the Twenty-First) and call it the “crews’ exemption.” For those whose practice is limited to these shores, check out Section 3121(b)(4).

Now that y’all are aboard, let’s hoist the revenue pennant to the maintop, and muster the IRS boarding party.

DAF Charters, LLC, 152 T. C. 14, filed 5/9/19, is a FL LLC wholly-owned by a Cayman Islands corporation. So DAF is disregarded, and all its tax attributes are those of its owner. For the year at issue, DAF operated the charter yacht Diamonds Are Forever in and out of US territorial waters.

Except.

The issue is FICA. An LLC is a regarded taxpayer since 2009, when FICA is on the menu. See my blogpost “Is an LLC a Person?” 9/11/15.

OK, so DAF is a FL LLC, but the yacht is Cayman Islands registered, so it isn’t an “American Vessel,” as the statute defines that term.

Then is DAF an “American Employer”? And one such is “…a corporation organized under the laws of the United States or of any State.’ Sec. 3121(h); see also sec. 31.3121(h)-1, Employment Tax Regs. (reiterating statutory rule).  Neither section 3121 nor any other provision in subtitle C of the Code separately defines ‘corporation’.” 152 T. C. 14, at p. 15 (footnote omitted, but it says the FUTA definition of “employer” as anyone who pays anyone to do anything works for FICA as well. Nobody doubts DAF was an employer; but was DAF an American employer?).

The famous “check-the-box” regs give all kinds of room for businesspeople to slice and dice their enterprises, be they regarded or disregarded. But when it comes to employment taxes, the statute bodychecks the would be box-checker and makes the entity (LLC) into a corporation and separate from its ownership.

Judge Ashford Judge’splains: “In other words, a disregarded entity is treated as a separate entity for purposes of employment taxes imposed under subtitle C and, in addition, the separate entity is treated as a corporation for purposes of employment taxes imposed under subtitle C and related reporting requirements.” 152 T. C. 14, at p. 18.

Although DAF’s counsel points out what absurd results one might get by variations on the statutory theme, those aren’t this case. DAF proposed no collection alternatives at Appeals, so the levy stands.

Away, boarders!

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