In Uncategorized on 02/08/2021 at 19:01

Many individuals, sole proprietors all, conduct business under an assumed name. All, or almost all, States have filing or registration requirements (with a concomitant fee, of course) for registration of assumed business names, with lists of impermissible ones.

And all those assumed names are disregarded for income tax purposes, sole proprietors being treated as such, and multiple proprietors as partnerships.

But what happens when the sole proprietor (colloquially known as a “dba”, for “doing business as”) winds up in Tax Court?

It’s apparently a case of first impression, so Judge Patrick J (“Scholar Pat”) Urda decides it’s just like a single-member LLC, and service on the dba is service on the sole proprietor.

Here’s BM Construction, 2021 T. C. Memo. 13, filed 2/8/21. BM Construction is really Marius Bernotas, who apparently had some backup withholding problems with some subcontractors from whom he did not get TINs when he paid them.  I’m going to pass on the fact-specific issues like mailing of Letters 950-D and the effect of the Form 4669 Statement of Payments Received Marius later proffered.

I’m going to the question of how to treat BM Construction, which exists in name only, when it got the various IRS documents triggering the NITL at issue here.

“The record establishes that the notice of determination was issued to Construction, a sole proprietorship, rather than to Mr. Bernotas, its owner. A sole proprietorship is generally disregarded as a separate entity from its owner for Federal tax purposes, sec. 301.7701-2(a), (c)(2)(i), Proced. & Admin. Regs., raising the question whether the notice here was valid….” 2021 T. C. Memo. 13, at pp. 8-9. (Citation and footnote omitted).

And this is a case of first impression at The Glasshouse on Second Street.

“Although we have not previously addressed this question with respect to sole proprietorships, we have done so regarding single-member LLCs disregarded for Federal tax purposes. We have explained that such LLCs and their members ‘are a single taxpayer * * * to whom notice is given’, …and that the issuance of a notice of determination to a disregarded LLC was a ‘harmless error’ where, inter alia, the member was adequately notified of the liabilities… or was not prejudiced by the IRS’ failure to treat the LLC as disregarded….

“Given that a sole proprietorship is an entity ‘in which a single individual owns all the assets, is liable for all debts, and operates in an individual capacity’ …we hold that the same rule obtains.” 2021 T. C. Memo. 13, at pp. 9-10. (Citations omitted).

So Tax Court has jurisdiction, Marius has his day in court, and loses.




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