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Posted by Stuart A. Bronstein on June 6, 2007, 4:39 pm
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If you haven't seen it, the Second Circuit Court of Appeals
(generally a pretty good court) recently issued a decision
concerning LLC's.
They said that the (single member) LLC election to be
treated as a proprietorship or a corporation is not only
effective for purposes of how the organization is taxed.
But it also applies to whether or not the LLC members are
personally liable for unpaid business taxs.
If the taxpayer had checked the "corporation" box, he would
owe nothing personally. But since he checked the
"proprietorship" box, they decided that he has to pay.
I suppose the case has some appeal from the standpoint that
the income was attributed to the taxpayer individually, and
the IRS may not have really known about the LLC. On the
other hand the check-box system was set up for determining
how the organization would be taxed, not who is responsible
for payment of the tax.
As far as I'm concerned the opinion is very poorly reasoned
and shows very little understanding of tax law.
The case is called McNamee v. IRS, and you can find it here:
http://caselaw.lp.findlaw.com/data2/circs/2nd/056151p.pdf
(it may require signing up, but it's free.)
Stu
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