More Support for Check-the-Box


Following the U.S. Supreme Court’s refusal to hear an appeal attacking the validity of “check-the-box” provisions, a district court has similarly denied a legal challenge to the default business entity classification. The plaintiff in the more recent decision, L&L Holding Co. LLC v. U.S. (101 AFTR2d 2008-2081), contested an employment tax collection action, just as in the earlier case, Littriello v. U.S. (99 AFTR2d 2007-2210; “Tax Matters: Check-the-Box Regulations Are Valid,” JofA, July 08, page 86). The Supreme Court in February allowed the Sixth Circuit’s decision against the taxpayer in Littriello to stand.

Subsequently, the District Court for the Western District of Louisiana likewise ruled that the check-the-box regulations are valid when applied to an LLC as an employer for purposes of employment taxes. L&L was the sole owner of Gonzales Home Health Care LLC, which had not made an election to be taxed as a corporation under the check-the- box rules and so by default was a disregarded entity.

Because of Gonzales’ unpaid employment taxes, the IRS filed a lien against L&L. L&L argued that because it did not meet the statutory definition of “employer” under IRC § 3401, the check-the-box regulations’ requirement that it be treated as the employer conflicted with the Code’s plain language.

Citing Littriello, as well as McNamee v. Department of the Treasury (99 AFTR2d 2007-2871), decided a year earlier by the Second Circuit, the district court denied there was any conflict, since the regulations do not define “employer” but prescribe treatment for all tax purposes, including employment taxes. Neither does the Code define LLCs, so their tax treatment is covered only by the regulations, the court said.

SPONSORED REPORT

Supercharge your audit process with AI

Auditors today can employ AI to automate tedious tasks and gain far greater insights from their clients’ information. This free report lays out a five-step process for implementing AI and shows ways AI can add value to the auditing process.

RESOURCES

Keeping you informed and prepared amid the coronavirus crisis

We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption.