The Tax Court denied a married couple's claim that Sec. 6698 partnership penalties did not apply to their limited liability company (LLC) because they held it as a single member.
Facts: Argosy Technologies LLC filed returns for 2010 and 2011 on Form 1065, U.S. Return of Partnership Income, with Schedule B-1, Information on Partners Owning 50% or More of the Partnership, listing a husband and wife each as 50% owners. The returns included a statement that the partnership elected to be covered under TEFRA (Tax Equity and Fiscal Responsibility Act of 1982, P.L. 97-248) unified audit procedures. The IRS determined unpaid tax liabilities and imposed late-filing penalties under Sec. 6698 for the tax years. In 2014, the IRS issued a notice of intent to levy, which it sustained in a notice of determination. Argosy petitioned the Tax Court, contending it was a single-member LLC rather than a partnership and therefore could not be assessed a penalty under Sec. 6698, which pertains to failure to file a partnership return.
Issues: For tax years after 2006, if spouses are the only members of a joint venture that conducts a trade or business in which they both materially participate (as defined in Sec. 469(h)), they may elect to be a qualified joint venture under Sec. 761(f) and not be treated for tax purposes as a partnership. The spouses must file a joint return for the tax year, and both must elect the application of this rule. All items of income, gain, loss, deduction, and credit will be divided between the spouses in accordance with their individual shares of the joint venture as if they were from a trade or business that each spouse conducted as a sole proprietor. The qualified joint venture election may be made by filing a joint return with required schedules.
Holding: Because Argosy filed returns representing itself as a partnership, it could not disclaim its validity and argue that it was actually a different type of entity, the Tax Court held. Although the couple claimed to have jointly been a single owner of the LLC, there was no evidence they had made the election to be a qualified joint venture under Sec. 761(f), according to the court, which also upheld late-filing penalties.
- Argosy Technologies, LLC, T.C. Memo. 2018-35
— By Sebastian B. Murolo, CPA, MBA, assistant professor, Queensborough Community College, CUNY, Bayside, N.Y.