Medical Practice Solutions, LLC, Carolyn Britton, Sole Member v. Commissioner , 132 T.C. No. 7 ( 2009 )

132 T.C. No. 7UNITED STATES TAX COURT
MEDICAL PRACTICE SOLUTIONS, LLC,
CAROLYN BRITTON, SOLE MEMBER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14668-07L. Filed March 31, 2009.
Single member LLC failed to pay employment taxes
for several periods. Notices of lien and of intent to
levy were sent to B, sole member of LLC. After hearing
under sec. 6330, I.R.C., notice of determination
sustaining lien and proposed levy were sent to “LLC, B,
Sole Member”, pursuant to sec. 301.7701-3(b), Proced. &
Admin. Regs. (check-the-box regulations). B claims
that only LLC is liable and that check-the-box
regulations (as applicable to employment taxes related
to wages paid before January 1, 2009) are invalid.
Held: Collection may proceed against B.
Littriello v. United States, 484 F.3d 372 (6th Cir.
2007), and McNamee v. Dept. of the Treasury, 488 F.3d
100 (2d Cir. 2007), followed.
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Carolyn Britton, for petitioner.
Louise Forbes, for respondent.
OPINION
COHEN, Judge: This case was commenced in response to a
Notice of Determination Concerning Collection Actions(s) Under
Section 6320 and/or 6330 addressed to “Medical Practice Solutions
LLC, Carolyn Britton, Sole Member” (petitioner), with respect to
unpaid employment taxes for quarters ended March 31 and June 30,
2006. Unless otherwise indicated, all section references are to
the Internal Revenue Code and all Rule references are to the Tax
Court Rules of Practice and Procedure.
The issue for decision is whether “check-the-box”
regulations, specifically section 301.7701-3(b), Proced. & Admin.
Regs., in effect for the periods in issue were invalid in
allowing pursuit of collection of employment taxes against the
sole member of a limited liability company.
Background
All of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Carolyn Britton (Britton) resided in Massachusetts at the time
the petition was filed. During the periods in issue, Medical
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Practice Solutions, LLC (the LLC) was a single-member limited
liability company registered in the Commonwealth of Massachusetts
with its principal office in Massachusetts.
Britton was the sole member of the LLC during the periods in
issue and treated the LLC as her sole proprietorship on Schedule
C, Profit or Loss From Business, of her Federal income tax return
for 2006. She did not elect to have the LLC treated as a
corporation for Federal income tax purposes.
Forms 941, Employer’s Quarterly Federal Tax Return, for the
periods in issue were filed in the name of the LLC. For the
period ended March 31, 2006, the Form 941 reported tax liability
in the amount of $16,648.01. For the period ended June 30, 2006,
the Form 941 reported tax liability of $18,434.58. The reported
amounts were not paid for either period.
On December 12, 2006, the Internal Revenue Service (IRS)
sent to Britton a Final Notice, Notice of Intent to Levy and
Notice of Your Right to a Hearing with respect to the unpaid
employment taxes for the periods in issue. On December 20, 2006,
the IRS sent to Britton a Notice of Federal Tax Lien Filing and
Your Right to A Hearing Under IRC 6320. On January 10, 2007,
Britton requested a hearing with respect to each collection
action. The request for hearing suggested as a collection
alternative a purported installment agreement dated August 9,
2006. The request for hearing also requested penalty abatement
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for “reasonable cause”. A letter attached to the request
asserted, among other things, that the notice of Federal tax lien
was against the wrong taxpayer because Britton “is not liable for
the employment Taxes; Medical Practice Solutions, LLC is liable.”
A hearing pursuant to section 6330 was conducted on April
23, 2007. In the notice of determination sent May 25, 2007, the
levy action and the lien were sustained. At the time of the
hearing and at the time of the notice, petitioner had not
proposed an amount for an installment agreement and had not
submitted supporting financial information. Petitioner had
merely sent a letter dated August 9, 2006, asking that the letter
be considered “a written request to set up a payment plan of the
maximum duration and the minimum due now, permitted by law.”
Discussion
Before addressing the main issue in this case, we dispose of
some arguments raised by petitioner that are unsupported by
evidence, reason, or authority.
This case was submitted fully stipulated, and the
requirements with respect to adducing proof, or the effect of
failure of proof, apply. See Rule 122(b). Several of
petitioner’s arguments are based on claims as to the manner in
which demands and notices were addressed and the pendency of an
installment agreement, but there is no evidence in the record
supporting those arguments. The stipulated exhibits contradict
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petitioner’s assertions that certain notices, including the
notice of determination that is the basis of this case, were
addressed “only” to the LLC. So far as the record reflects, all
notices were either addressed to the LLC, Carolyn Britton, Sole
Member, or to Britton.
The petition was initially filed in the names of the LLC and
Britton, but the caption was corrected on order of the Court to
be consistent with the notice of determination. Petitioner now
claims that the Court lacks subject matter jurisdiction over
Britton because no notice of determination was sent to her. The
manner of address in the notice speaks for itself: it was sent
to Britton as the sole member of the LLC, consistent with the
regulations discussed below. For purposes of this proceeding,
under those regulations, the LLC and its sole member are a single
taxpayer or person to whom notice is given.
Petitioner asserts that certain IRS instructions for filing
employment tax returns are misleading. There is no evidence
supporting that characterization or showing that petitioner was
misled.
Although in the request for hearing and the petition,
petitioner raised an issue of abatement of penalties, there is no
evidence of reasonable cause. Petitioner’s opening brief did not
address the penalties, and petitioner failed to file the reply
brief ordered by the Court. Thus arguments concerning the
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penalties have been abandoned. See, e.g., Nicklaus v.
Commissioner, 117 T.C. 117, 120 n.4 (2001).
The “Check-The-Box” Regulations
The relevant parts of the regulations provide:
(b) Corporations.--For federal tax purposes, the
term corporation means--
(1) A business entity organized under a Federal
or State statute, or under a statute of a federally
recognized Indian tribe, if the statute describes or
refers to the entity as incorporated or as a
corporation, body corporate, or body politic; [Sec.
301.7701-2(b)(1), Proced. & Admin. Regs.]
* * * * * * *
(2) Wholly owned entities.--(i) In general.--A
business entity that has a single owner and is not
a corporation under paragraph (b) of this section is
disregarded as an entity separate from its owner.
[Sec. 301.7701-2(c)(2), Proced. & Admin. Regs.]
* * * * * * *
(a) In general.--A business entity that is not
classified as a corporation under §301.7701-2(b)(1),
(3), (4), (5), (6), (7), or (8) (an eligible entity)
can elect its classification for federal tax purposes
as provided in this section. An eligible entity with
at least two members can elect to be classified as
either an association (and thus a corporation under
§301.7701-2(b)(2)) or a partnership, and an eligible
entity with a single owner can elect to be classified
as an association or to be disregarded as an entity
separate from its owner. Paragraph (b) of this section
provides a default classification for an eligible
entity that does not make an election. Thus, elections
are necessary only when an eligible entity chooses to
be classified initially as other than the default
classification or when an eligible entity chooses to
change its classification. * * *
(b) Classification of eligible entities that do
not file an election.--(1) Domestic eligible entities.
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--Except as provided in paragraph (b)(3) of this
section, unless the entity elects otherwise, a domestic
eligible entity is–-
(i) A partnership if it has two or more members;
or
(ii) Disregarded as an entity separate from its
owner if it has a single owner. [Sec. 301.7701-3(a)
and (b)(1), Proced. & Admin. Regs.]
For employment taxes related to wages paid on or after January 1,
2009, a disregarded entity is treated as a corporation for
purposes of employment tax reporting and liability. Sec.
301.7701-2(c)(2)(iv), Proced. & Admin. Regs., T.D. 9356, 2007-2
C.B. 675.
Petitioner’s position is that the LLC was the employer
liable for the taxes in issue and that so-called check-the-box
regulations under which the IRS pursues collection against
Britton are invalid. Petitioner contends that the amended
regulations, which reverse the effect of regulations applicable
to the periods in issue here, show that the prior regulations
were unreasonable. Each of petitioner’s contentions in this
regard, however, has been consistently rejected by other courts.
In Littriello v. United States, 484 F.3d 372 (6th Cir.
2007), the Court of Appeals upheld the check-the-box regulations
in the context of employment tax liabilities of a single-member
LLC. After reviewing the history of the regulations and their
purpose in filling gaps left in the definitions of entities set
out in section 7701, the Court of Appeals analyzed the
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regulations under Chevron U.S.A., Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837 (1984). The Court of Appeals rejected
arguments that the Chevron test had been modified by subsequent
Supreme Court cases; the argument that the LLC’s separate
existence under State law had to be recognized; and the argument
that the amendments to the regulations that had been proposed as
of the time of Littriello’s litigation should reflect then-
current Treasury Department policy and be applied to that case.
In McNamee v. Dept. of the Treasury, 488 F.3d 100 (2d Cir.
2007), the Court of Appeals considered almost identical arguments
and reached the same result. The court stated:
In light of the emergence of limited liability
companies and their hybrid nature, and the continuing
silence of the Code on the proper tax treatment of such
companies in the decade since the present regulations
became effective, we cannot conclude that the above
Treasury Regulations, providing a flexible response to
a novel business form, are arbitrary, capricious, or
unreasonable. The current regulations allow the
single-owner limited liability company to choose
whether to be treated as an “association”--i.e., a
corporation--or to be disregarded as a separate entity.
If such an LLC elects to be treated as a corporation,
its owner avoids the liabilities that would fall upon
him if the LLC were disregarded; but he is subject to
double taxation--once at the corporate level and once
at the individual shareholder level. If the LLC
chooses not to be treated as a corporation, either by
affirmative election or by default, its owner will be
liable for debts incurred by the LLC, but there will be
no double taxation. The IRS check-the-box regulations,
allowing the single-owner LLC to make the choice, are
therefore eminently reasonable. Accord Littriello, 484
F.3d 372, 376-79. [Id. at 109.]
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Other courts that have addressed the specific issue before
us have followed Littriello and McNamee. See Kandi v. United
States, 97 AFTR 2d 721, 2006-1 USTC par. 50,231 (W.D. Wash.
2006), affd. 295 Fed. Appx. 873 (9th Cir. 2008); Stearn & Co.,
LLC v. United States, 499 F. Supp. 2d 899 (E.D. Mich. 2007).
Petitioner asserts that in Dover Corp. & Subs. v.
Commissioner, 122 T.C. 324, 331 n.7 (2004), this Court
“intimated, sua sponte” that the check-the-box regulations were
invalid. The Court, however, specifically declined to give an
opinion on the validity of the regulations, because neither party
had raised the issue, and mentioned only that commentators had
speculated on the subject. Moreover, Dover Corp. did not involve
employment tax liability of a single-member LLC. Petitioner also
cites People Place Auto Hand Carwash, LLC v. Commissioner, 126
T.C. 359 (2006), which involved employment tax liability of an
LLC with more than one member. None of the cases petitioner
cites speaks to the subject here.
Petitioner has not even addressed the authorities directly
in point. She has given us no reason to reach a different
result, and we have found none. She has not contested the
underlying liabilities. We have considered her other
contentions, but they are irrelevant or lack merit.
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To reflect the foregoing,
Decision will be entered
for respondent.