internal_revenue_service number release date index number ------------------------------------- ------------------------ ------------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc intl b02 plr-135251-13 date date ty ------- legend ------------------------------------- taxpayer -------------------------------- company ------------ country -------------- state -------------------------------------------- firm advisor ---------------------- accountant ------------------------ business a year year year year year year year year year date date month ---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------------------------- --------------------------- ----------------------- dear ------------------------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund plr-135251-13 qef election under sec_1295 of the internal_revenue_code and sec_1_1295-3 with respect to shareholder’s investment in company the ruling contained in this letter is based upon information and representations submitted on your behalf by your authorized representative and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a united state citizen and resident who acquired shares of company in year taxpayer acquired additional shares of company in year year year year and year at the end of year company entered into a transaction and all of taxpayer’s shares were sold on date company was formed in year under the laws of country and is treated as a corporation for u s federal_income_tax purposes taxpayer’s investment in company was handled by advisor of firm advisor did not receive any statements or tax documents on behalf of taxpayer with respect to the shares owned in company and did not provide any_tax advice to taxpayer taxpayer relied on accountant to prepare his u s tax returns for many years including the years in which taxpayer owned shares in company accountant is a reputable accountant in the united_states who has been preparing tax returns as a certified_public_accountant in state for years the taxpayer provided accountant all relevant information and documentation necessary to prepare taxpayer’s tax returns and to provide advice on u s tax matters accountant was aware of taxpayer’s ownership of shares in company but failed to identify company as a passive_foreign_investment_company pfic within the meaning of sec_1297 of the code as a result accountant did not advise taxpayer about the possibility of making or the consequences of failing to make a qef election with respect to taxpayer’s shares in company taxpayer was not aware that company was a pfic until month when company was about to enter into a transaction involving the sale of taxpayer’s shares as part of the transaction company issued an information circular on date to all shareholders the information circular stated that company believed it was a pfic for year and all prior years and provided information regarding the availability of a retroactive qef election in year taxpayer engaged a law firm to assist with filing a private_letter_ruling request for a retroactive qef election taxpayer has submitted an affidavit signed under penalties of perjury that describes the events that led to his failure to make a qef election with respect to company by the election due_date including the role of accounting firm plr-135251-13 taxpayer also submitted an affidavit from accountant which describes accountant’s engagement and responsibilities taxpayer represents that as of the date of this request_for_ruling the pfic status of company has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to company for year under sec_1_1295-3 law sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to the pfic for the taxable_year and the pfic complies with the requirements prescribed by the secretary for purposes of determining the ordinary_earnings and net capital_gains of the company under sec_1295 a qef election may be made for a taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for the taxable_year to the extent provided in regulations the election may be made after the due_date if the shareholder failed to make an election by the due_date because the shareholder reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the company for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date plr-135251-13 the discovery of the failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on the professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to company for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this private_letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely jeffery g mitchell branch chief branch international cc


cca_2016121213252620 id uilc number release date from sent monday date pm to cc bcc subject re certificate of discharge request - status of buyer as purchaser -------- here is the email follow-up to the voice message we agree with what you stated with respect to both the income_tax assessment and the tfrp assessment also as we discussed hardship is not an issue ----------------------- ----------------------------------------------------- ----------------------------- -------------------------


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa ---------------- posts-111509-09 uilc date date to from general attorney------------------------ tax exempt government entities senior technician reviewer procedure administration branch subject assessing employee share of fica in seca_tax court_proceeding this chief_counsel_advice responds to your request for assistance dated date tege asked whether sec_6521 a limited mitigation provision allows the internal_revenue_service service to assess unpaid federal_insurance_contribution_act fica_taxes during the pendency of a tax_court proceeding arising from the issuance of a statutory_notice_of_deficiency for self-employment compensation act seca taxes when the assessment statute_of_limitations for the fica_taxes has expired this advice may not be used or cited as precedent issue sec_1 whether the service may use the mitigation provision of sec_6521 to assess fica_taxes against a taxpayer when the taxpayer has not paid fica_taxes or remitted seca taxes and the statute_of_limitations under sec_6501 has expired with respect to the taxpayer’s share of fica_taxes if sec_6521 applies can the service assess the fica_taxes during the pendency of the tax_court case if a reduction or offset is permitted under sec_6521 should the reduction or offset be included below_the_line in a decision document posts-111509-09 conclusion sec_1 sec_6521 does not provide a mechanism to assess fica or seca taxes instead sec_6521 operates to mitigate the expiration of the statute_of_limitations on assessment of fica or seca taxes when a taxpayer’s employment status is erroneously classified and either self-employment_income is incorrectly classified as wages and fica_taxes are paid or wages are incorrectly classified as self-employment_income and self-employment taxes are paid when applicable this provision provides a reduction or offset between and based upon the tax erroneously paid and the tax actually due under the circumstances described below no reduction or offset is available under sec_6521 sec_6521 does not apply to the facts discussed below and therefore no assessment of fica_taxes is permitted during the pendency of the tax_court case or otherwise under the facts presented below a reduction or offset is not permitted by sec_6521 facts your request for advice and subsequent telephone call provided the following facts taxpayers treated as independent contractors and not as employees receive form 1099s reporting remuneration earned by the taxpayers in each calendar_year some of these taxpayers report the amount listed in box of form_1099 non-employee compensation as wages from employment on their form 1040s without paying the employee share of fica_taxes attributable to those wages these taxpayers therefore have not paid either their share of fica_taxes under sec_3101 or seca taxes under sec_1401 on these earnings upon receipt of the form 1040s the service identifies the disparity of form_1099 non- employee compensation reported as wages and pursuant to an sbse initiative automatically issues statutory notices of deficiency to the taxpayers asserting that the amounts reported as wages from employment on the form 1040s should have been reported as self-employment_income and that the taxpayers are liable for unpaid seca taxes at the time these statutory notices of deficiency are issued however the service has not yet performed an examination to determine the proper worker classification of the taxpayers a number of these taxpayers petition the tax_court arguing that they are employees not self-employed individuals and are thus subject_to fica_taxes not seca taxes these cases often involve facts indicating that the taxpayer is an employee often and posts-111509-09 for purposes of this advice the statute_of_limitations on assessment under sec_6501 has run with respect to the employee share of fica_taxes law and analysis employees as defined in sec_3121 receive form w-2s reporting among other items wages from employment and the amount of social_security and medicare taxes fica_taxes withheld during the year non-employees receive form 1099-miscs reporting non-employee compensation among other items sec_3101 imposes the employee’s share of fica_taxes equal to of wages sec_3102 requires an employer to withhold an employee’s fica_taxes from the employee’s wages at the time of payment and remit the amounts to the government sec_31_6011_a_-1 requires that an employer make a quarterly return on form_941 for each calendar_quarter in which it pays wages that are subject_to fica_taxes the form_941 is the required tax_return for reporting both the employee’s and employer’s share of fica self-employed individuals are not subject_to fica_taxes but are instead subject_to seca taxes imposed by sec_1401 this section imposes a tax on self-employed individuals equal to15 of self-employment_income individuals with self-employment_income over the applicable_threshold amount are required to report the income on their form_1040 and remit seca taxes sec_1_6017-1 as the facts indicate the assessment statute_of_limitations has run with respect to the fica_taxes due and unpaid in some of the cases before the tax_court ---------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------- it is not until a later time typically when the taxpayer petitions the tax_court that this issue arises sec_6521 can in certain circumstances mitigate the effects of an expired period of limitations in the case of fica and seca taxes sec_6521 does not provide a mechanism to assess fica or seca taxes but instead provides limited mitigation of the expiration of the assessment statute_of_limitations for fica or seca taxes when a taxpayer’s employment status is erroneously classified and either self-employment_income is incorrectly classified as wages and fica_taxes are paid or wages are incorrectly classified as self-employment_income and self-employment taxes are paid sec_6521 mitigates these types of errors by providing a reduction or offset of the amount erroneously paid_by the amount actually due or of the amount actually due by the amount erroneously paid despite the expiration of the limitations_period as to one of the taxes posts-111509-09 sec_6521 will mitigate the effects of an expired period of limitations when a an amount is erroneously treated as self-employment_income or an amount is erroneously treated as wages b correction of the error requires the assessment of one tax and the refund_or_credit of another and c correction of one tax is authorized but the other tax is prevented by any rule_of law other than sec_7122 if the three requirements of sec_6521 are satisfied when the authorized correction is made the amount of the allowable assessment or refund will be reduced by the refund or assessment that would be required if such was not prevented by law this reduction will only occur however if the three requirements of sec_6521 have been satisfied ie erroneous treatment of compensation assessment of the unpaid tax and refund credit of the paid tax and correction is possible as to one but not both taxes the legislative_history of sec_6521 and sec_301_6521-1 provide several examples of the operation of sec_6521 for instance sec_301_6521-1 reads another illustration of the operation of sec_6521 is the case of a taxpayer who for is erroneously taxed on dollar_figure as wages the tax on which is dollar_figure and who reports no self-employment_income after the period of limitations has run on the refund of the tax under the federal_insurance_contributions_act it is determined that the amount treated as wages should have been reported as net_earnings_from_self-employment the taxpayer's self-employment_income would then be dollar_figure and the tax thereon would be dollar_figure assume that the period of limitations applicable to subtitle a of the code has not expired and that a notice_of_deficiency may properly be issued under sec_6521 the amount of the deficiency of dollar_figure must be reduced by the barred overpayment of dollar_figure all of the examples contained in the sec_6521 legislative_history and regulations present situations where either fica_taxes or seca taxes were paid_by the taxpayer or on the taxpayers’ behalf ie the taxpayer has satisfied condition b under the facts presented above however conditions a and c are satisfied but condition b is not satisfied condition b is not satisfied because neither the employers withheld nor the taxpayers paid the fica_taxes due with respect to the wages earned by the taxpayers and no seca taxes were paid_by the taxpayers therefore sec_6521 is not available to mitigate the effects of an expired assessment limitations_period under the factual circumstances described above in cases currently before the tax_court where the service will concede the taxpayer’s status as an employee assessment of the unpaid fica_taxes is foreclosed by section posts-111509-09 and neither fica nor seca taxes have been paid sec_6521 cannot be utilized for mitigation purposes the result is the same in cases not currently before the tax_court where the statute_of_limitations under sec_6501 has run with respect to fica_taxes and neither fica nor seca taxes were paid in these situations the taxpayers must enter into closing agreements with the service agreeing to the amount and assessment of the fica tax_liability in order for the service to collect these taxes ---------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call procedure and administration branch at if you have any further questions


internal_revenue_service number release date index number ----------------------------- ----------------------------------- -------------------- ----------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-141912-08 date march x ----------------------------------- country --------------------- date -------------------------- dear ------------- this responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to elect to be treated as a partnership for federal tax purposes under sec_301_7701-3 the information submitted states that x was formed under the laws of country on date x represents that x is a foreign_entity eligible to elect to be treated as a partnership however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a partnership effective date sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed plr-141912-08 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish o the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court james r brown and opal freeman petitioners v commissioner of internal revenue respondent docket no filed date kacie n c dillon for petitioners michael r harrel for respondent memorandum opinion ashford judge by statutory_notice_of_deficiency dated date respondent determined deficiencies of dollar_figure and dollar_figure in petitioners’ federal_income_tax for the and taxable years respectively in this same notice_of_deficiency respondent also determined additions to tax pursuant to sec_6651 of dollar_figure and dollar_figure and additions to tax pursuant to sec_6654 of dollar_figure and dollar_figure for the and taxable years respectively this case is before the court on petitioners’ motion for entry of decision and respondent’s motion for leave to file an amendment to answer pursuant to which respondent has lodged with the court an amendment to answer as explained below we will deny petitioners’ motion and grant respondent’s motion and file respondent’s lodged amendment to answer background the following facts are derived from the parties’ pleadings motion papers and the testimony and exhibits presented at a hearing that the court conducted as discussed below with respect to the parties’ motions petitioners resided in arizona at the time the petition was filed with the court when petitioners failed to timely file federal_income_tax returns for the and taxable years these years were selected for an internal_revenue_service irs examination during the examination on date petitioners filed joint federal_income_tax returns for these years 1unless otherwise indicated all section references are to the internal_revenue_code code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure some monetary amounts are rounded to the nearest dollar on the joint_return petitioners reported a tax_liability of dollar_figure and a balance due ie an underpayment_of_tax after application of refundable credits totaling dollar_figure of dollar_figure on the joint_return petitioners reported a tax_liability of dollar_figure and a balance due ie an underpayment_of_tax after application of refundable credits totaling dollar_figure of dollar_figure petitioners remitted no payment with either return at a time not established by the record before the issuance of the date notice_of_deficiency respondent assessed the reported underpayments of tax pursuant to sec_6201 also before the issuance of the notice_of_deficiency and pursuant to sec_6201 and sec_6665 respondent assessed additions to tax for failure to timely pay under sec_6651 of dollar_figure and dollar_figure for and respectively the sec_6651 addition_to_tax assessment was actually a partial assessment petitioners’ total liability for that sec_6651 addition_to_tax is dollar_figure accordingly the accrued but unassessed portion of this addition_to_tax is dollar_figure respondent did not make assessments for failure to timely file returns under sec_6651 and failure to make estimated_tax payments under sec_6654 for or 2respondent apparently assessed the addition_to_tax of dollar_figure on date and the addition_to_tax of dollar_figure on date respondent concluded the examination determining deficiencies for and as a result of adjustments he made to petitioners’ and schedules e supplemental income and loss pertaining to a partnership in which they had an interest respondent also determined that additions to tax for failure to timely file returns under sec_6651 and failure to make estimated_tax payments under sec_6654 for and should be imposed the date notice_of_deficiency issued to petitioners reflects those determinations according to this notice_of_deficiency the sec_6651 additions to tax for and were computed on the basis of the net amounts due ie petitioners’ total corrected liability minus allowable payments on or before the due_date of each year’s return3 no separate allocation was set forth in the notice as to what portion of the sec_6651 addition_to_tax for each year was attributable to petitioners’ self-reported tax_liability and the determined deficiency the sec_6654 additions to tax for and were computed on the basis of the underpayments of tax petitioners reported on the returns for 3in this case for the allowed payments were the reported additional_child_tax_credit and making work pay and government retiree credits and for the allowed payments were the reported making work pay and government retiree credits and not the reported additional_child_tax_credit also those years the notice correctly listed the p reviously assessed previously agreed failure_to_file_penalty and the p reviously assessed previously agreed estimated_tax penalty for and as zero and the p reviously assessed previously agreed failure to pay penalty for as dollar_figure but incorrectly and inexplicably listed the p reviously assessed previously agreed failure to pay penalty for as zero on date petitioners timely petitioned this court for redetermination of the deficiencies and the additions to tax under sec_6651 and sec_6654 although petitioners did not specifically contest their liability for the additions to tax under sec_6651 in the prayer for relief section in their petition they requested t hat the court determine that petitioners are not liable for any penalties or additions to tax for the calendar years ended date and petitioners also did not allege in their petition and they do not assert in this proceeding that we find an overpayment of either their federal income taxes or the additions to tax for and on date respondent timely filed an answer generally denying the allegations in petitioners’ petition and making no affirmative allegations regarding the sec_6651 additions to tax thereafter respondent’s counsel michael r harrel forwarded petitioners’ case for settlement consideration to the irs office of appeals appeals and the case once received by appeals was assigned to appeals officer dwight krstulja ao krstulja settlement discussions ensued between ao krstulja and petitioners’ counsel kacie n c dillon in date approximately one month before the case was scheduled for trial at the session of the court commencing date in phoenix arizona they believed that they had reached a basis for settlement ao krstulja then proceeded to have an irs tax computation specialist prepare tax computations on the basis of the putative settlement these tax computations were ultimately reflected on a form_5278 statement - income_tax changes which showed in pertinent part the following amounts due from petitioners taxable_year deficiency -0- -0- balance due or overpayment -0- -0- a additions to tax sec sec_6654 dollar_figure dollar_figure big_number according to this form_5278 since there was no deficiency for and the sec_6651 additions to tax were correctly computed on the basis of the underpayments of tax petitioners reported on their delinquent joint returns ie dollar_figure for and dollar_figure for the sec_6654 additions to tax were correctly computed in the same way they had been computed in the date notice_of_deficiency ie on the basis of petitioners’ reported underpayments of tax the form_5278 also correctly listed the p reviously assessed previously agreed failure to pay penalty for as dollar_figure whereas as previously noted see supra p the date notice_of_deficiency listed the amount incorrectly zero the form however incorrectly listed the p reviously assessed previously agreed failure to pay penalty for as dollar_figure whereas as previously noted see supra p the date notice_of_deficiency listed the amount correctly dollar_figure on date ao krstulja faxed a copy of the tax computations to ms dillon he also indicated in the facsimile to her that she should call him with any questions and that he would return petitioners’ case to mr harrel on date having not heard anything further from ms dillon he assumed that she 4the parties have not addressed why the latter amount differs from that in the notice_of_deficiency but neither party relies on this amount for any purpose and thus we assume that it was merely an inadvertent error we also note for the benefit of the parties that the computations appear not to incorporate the reduction under sec_6651 preventing double-counting of additions to tax under both sec_6651 and for months for which both apply agreed with the computations and he returned the case to mr harrel for preparation of a stipulated decision document the case was called from the calendar for the trial session of the court at phoenix arizona on date mr harrel and ms dillon appeared on behalf of respondent and petitioners respectively and informed the court that they were unable to reach an agreement on the terms that should be included in the decision document and that therefore a basis for settlement had not been reached specifically they disagreed as to the treatment in the decision document of the additions to tax under sec_6651 and sec_6654 attributable to petitioners’ reported underpayments of tax for and as well as the assessed sec_6651 additions to tax for those years and the unassessed sec_6651 addition_to_tax for it was mr harrel’s understanding from ao krstulja that as part of the settlement petitioners agreed to being liable for the additions to tax under sec_6651 and sec_6654 attributable to their reported underpayments of tax accordingly those additions to tax should be addressed in the decision document it was also mr harrel’s ie respondent’s position that this court has jurisdiction over the assessed and unassessed portions of the sec_6651 additions to tax despite their being attributable only to petitioners’ reported underpayments of tax and not having been determined in the november notice_of_deficiency and that therefore they too should be addressed in the decision document ms dillon’s ie petitioners’ position was that because all of the additions to tax are related only to petitioners’ reported underpayments of tax they are assessable additions to tax beyond the scope of this court’s jurisdiction and thus should not and cannot be included in the decision document accordingly the court should enter a decision implementing the parties’ supposed agreement that there is no deficiency in federal_income_tax due from nor overpayment due to the petitioners for and and there are no additions to tax under sec_6651 and sec_6654 attributable to deficiencies for and after being heard and in support of their respective positions ms dillon filed a motion for entry of decision on petitioners’ behalf and mr harrel filed a motion for leave to file an amendment to answer and lodged an amendment to answer on respondent’s behalf attached to the motion for entry of decision was inter alia a draft decision setting forth the aforementioned supposed agreement according to ms dillon the amendment to answer sought to allege petitioners’ liability for the previously assessed sec_6651 addition_to_tax attributable to their reported underpayment_of_tax of dollar_figure and the previously assessed and unassessed sec_6651 additions to tax attributable to their reported underpayment_of_tax totaling dollar_figure later on date the court held a hearing with regard to the parties’ motions admitted into evidence at the hearing was a copy of the form_5278 the date notice_of_deficiency and a date email from ms dillon to mr krstulja stating in pertinent part that i think we are in agreement on this one the taxpayer will accept a settlement based upon the amended k-1 i will not come for our meeting tomorrow i will give you a call tomorrow to finalize our discussion so we can close the case no witnesses testified for petitioners ao krstulja testified for respondent regarding his handling of the case including his discussions with ms dillon during his testimony he acknowledged that his discussions with ms dillon focused on resolving the adjustments to income set forth in the date notice_of_deficiency they did not discuss the additions to tax following the hearing and pursuant to an order of this court each party filed a written response objecting to the other’s motion discussion i petitioners’ motion for entry of decision an agreement to settle a case before this court is a contract accordingly we apply general principles of contract law when called on to resolve whether the litigants have reached a settlement 108_tc_320 aff’d 208_f3d_205 3d cir in a case pending before this court a settlement agreement may be reached by correspondence in the absence of a formal document such as a closing_agreement under sec_7121 manko v commissioner tcmemo_1995_10 a prerequisite to the formation of an agreement is that there be a meeting of the minds ie an objective manifestation of mutual assent to its essential terms dorchester indus inc v commissioner t c pincite 90_tc_684 smith v commissioner tcmemo_2009_33 estate of halder v commissioner tcmemo_2003_84 manko v commissioner tcmemo_1995_ this principle applies even where an essential term is one over which the court lacks jurisdiction see smith v commissioner slip op pincite the determination of whether there was a meeting of the minds sufficient to constitute a contract is one of fact estate of halder v commissioner slip op pincite citing 241_f3d_135 2d cir on the basis of the evidence before us we find that the parties did not reach a settlement because there was never a meeting of the minds as to several of its essential terms--the additions to tax attributable to petitioners’ reported underpayments of tax for and under sec_6651 and and indeed petitioners acknowledge this disagreement in their motion asking us on the one hand to enter a decision adjudicating exclusively those matters on which the parties agree ie the and deficiencies and the additions to tax under sec_6651 and sec_6654 attributable to those deficiencies and asserting on the other hand that the matters on which they disagree are outside the scope of our jurisdiction the parties however must agree on both the issues to be settled and the resolution of those issues we will not enter a decision on some issues for which resolutions are agreed if the parties do not agree that those are all of the issues that they seek to resolve accordingly we find that the parties did not reach a settlement agreement and we will deny petitioners’ motion 5given that we will grant respondent’s motion our reasons for which we next discuss herein see infra pp petitioners’ motion is also premature ii respondent’s motion for leave to file an amendment to answer amendment of pleadings is addressed in rule a which as relevant here provides that a party may amend a pleading only by leave of court and leave shall be given freely where justice so requires respondent seeks to amend his answer by leave of court to include the sec_6651 additions to tax attributable to petitioners’ reported underpayments of tax for and petitioners object to our granting respondent’s motion primarily on the ground that the court lacks jurisdiction over these additions to tax petitioners also maintain that respondent lacks a justifiable reason for seeking to amend his answer at such a late date on the first day of the trial session and that allowing respondent to do so would unduly prejudice them we will address each contention in turn 6petitioners also assert in their response to respondent’s motion that res_judicata with respect to the sec_6651 additions to tax is inapplicable here because having jurisdiction over an issue is a prerequisite to finding that res_judicata applies and if respondent’s motion is granted respondent should bear the burden_of_proof as to the sec_6651 additions to tax in the light of our resolution of respondent’s motion we see no need to address these assertions at this time a our jurisdiction over sec_6651 additions to tax attributable to an amount shown on a taxpayer-filed return this court like all federal courts is a court of limited jurisdiction our jurisdiction and its extent are explicitly provided by statute sec_7442 85_tc_527 66_tc_61 we have jurisdiction to redetermine a deficiency in income estate gift or certain excise_taxes when the commissioner issues to a taxpayer a notice_of_deficiency that reflects a deficiency in respect of any of those taxes and the taxpayer timely petitions this court for redetermination of that deficiency see secs rule a c but in the case of additions to tax and specifically as relevant here an addition_to_tax under sec_6651 attributable to an amount shown on a taxpayer-filed return the key section of the code addressing whether we have jurisdiction over such additions to tax is sec_6214 since sec_6214 has provided as follows sec_6214 jurisdiction as to increase of deficiency additional_amounts or additions to the tax --except as provided by sec_7463 the tax_court shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency_notice of which has been mailed to the taxpayer and to determine whether any additional_amount or any addition to the tax should be assessed if claim therefor is asserted by the secretary at or before the hearing or a rehearing emphasis added prior to sec_6214 did not contain the phrase or any addition to the tax but simply provided in pertinent part that the tax_court shall have jurisdiction to redetermine the correct amount of the deficiency and to determine whether any additional_amount or addition to the tax should be assessed emphasis added in 81_tc_879 we interpreted the pre-1986 provision holding that the provision did not confer jurisdiction upon the court over any addition_to_tax under sec_6651 unless that addition_to_tax is attributable to a deficiency and accordingly subject_to the code’s deficiency procedures hence we held under the facts of the case that the disputed addition_to_tax under sec_6651 measured by the amount of tax shown on the taxpayer’s filed return fell outside of the court’s jurisdiction because it a fortiori was not attributable to a deficiency and accordingly not subject_to the code’s deficiency procedures following our opinion in estate of young congress amended sec_6214 by inserting the word any before the words addition to the tax see 7at that time the code’s deficiency procedures pertaining to additions to tax were set forth in sec_6659 congress redesignated sec_6659 as sec_6660 in then redesignated sec_6660 as sec_6662 in and then lastly redesignated sec_6662 as sec_6665 in tax_reform_act_of_1986 pub_l_no sec a stat pincite with this amendment congress explicitly sought to overrule our holding in estate of young and clarify that the tax_court has jurisdiction over additions to tax under sec_6651 for failure to pay an amount shown on the return where the tax_court already has jurisdiction to redetermine a deficiency in tax with respect to that return see h_r conf rept no vol ii at ii-804 1986_3_cb_1 s rept no pincite 1986_3_cb_1 since that amendment our opinions generally have been consistent with congress’ intent see 101_tc_189 n acknowledging that the amendment of sec_6214 grants the tax_court jurisdiction over additions to tax under sec_6651 in a deficiency proceeding estate of hinz v commissioner tcmemo_2000_6 slip 8we also note that congress deliberately did not amend sec_6665 see h_r conf rept no vol ii at ii-804 1986_3_cb_1 aside from resolving the sec_6651 jurisdictional issue the provision ie amended sec_6214 does not alter the jurisdiction of the tax_court the provision is not intended to change existing law insofar as the sec_6651 late filing addition_to_tax or the procedure for assessing additions to tax under sec_6662 ie then sec_6665 as a result congress has seemingly created an inconsistency in our jurisdiction in a deficiency proceeding over additions to tax under sec_6651 and and that are determined ie measured by the amount of tax shown on a taxpayer’s return see infra note op pincite holding that the tax_court has undisputed jurisdiction over sec_6651 additions to tax in a deficiency proceeding estate of nemerov v commissioner tcmemo_1998_186 slip op pincite holding that the tax_court was authorized to decide a sec_6651 addition_to_tax assessed on the basis of the tax reported on the estate’s delinquent_return and citing the legislative_history to the amendment of sec_6214 see also crummey v commissioner tcmemo_2016_9 at holding that the taxpayers’ delinquent returns were a basis for the tax_court to determine the applicability of the sec_6651 additions to tax and citing the court’s opinion in estate of nemerov cf newby’s plastering inc v commissioner tcmemo_1998_320 slip op pincite holding that because the commissioner did not determine a deficiency in tax the tax_court lacked jurisdiction over the sec_6651 addition_to_tax among other additions petitioners cite vines v commissioner tcmemo_2009_267 aff’d 418_fedappx_900 11th cir in support of their assertion that we lack jurisdiction over the sec_6651 additions to tax such reliance is misplaced this memorandum opinion in vines arose out of a collection_due_process cdp proceeding in which the taxpayer challenged his underlying liability for the sec_6651 addition_to_tax in response to an adverse notice of determination in the cdp proceeding the taxpayer petitioned this court some months later the irs issued the same taxpayer a notice_of_deficiency that included the same taxable_year but did not include any sec_6651 determination the taxpayer then petitioned this court with regard to the notice_of_deficiency neither party raised the sec_6651 addition_to_tax in the deficiency proceeding the deficiency case was decided before the cdp case in an opinion which did not address the sec_6651 addition_to_tax 126_tc_279 the irs then sought to invoke res_judicata in the cdp case to foreclose the taxpayer’s longstanding challenge to the sec_6651 addition_to_tax in the cdp case in vines v commissioner tcmemo_2009_267 the court declined to apply res_judicata in this manner instead allowing the taxpayer’s challenge to the sec_6651 addition_to_tax to go forward in the cdp case cf godwin v commissioner tcmemo_2003_289 in consolidated deficiency and cdp cases asserting jurisdiction over sec_6651 addition_to_tax as in the cdp case under sec_6330 properly confined to its unusual circumstances in the application of res_judicata in related deficiency and cdp cases vines does not stand for the proposition as petitioners suggest that this court generally lacks jurisdiction over the sec_6651 addition_to_tax consequently contrary to petitioners’ assertions and in accord with congress’ intent in amending sec_6214 we have jurisdiction over the sec_6651 additions to tax attributable to their reported underpayments of tax for and since we have jurisdiction over the federal_income_tax deficiencies for those years as reflected in the date notice_of_deficiency which jurisdiction we acquired when petitioners timely petitioned this court for redetermination of those deficiencies dollar_figure 9in addition we are controlled in any event by our precedential opinion in 101_tc_189 10for the benefit of the parties we also make clear that our jurisdiction over respondent’s determination of the additions to tax under sec_6651 for and extends only to so much of these additions as is attributable to the deficiencies for those years and that we lack jurisdiction over respondent’s determination of the additions to tax under sec_6654 for and because these additions are not subject_to the deficiency procedures given that petitioners filed returns for those years see meyer v commissioner 97_tc_555 owens v commissioner tcmemo_2001_314 slip op pincite n estate of nemerov v commissioner tcmemo_1998_186 slip op pincite cf 88_tc_1175 holding that the tax_court has jurisdiction to determine overpayments of additions to tax under sec_6651 and and even when such additions to tax are not subject_to the deficiency procedures however as discussed supra pp these limits on our jurisdiction in this case do not preclude the parties from seeking to include these additions as part of an agreement to settle this case b unfair surprise disadvantage or prejudice whether to allow the commissioner to amend his answer is a matter within the sound discretion of the court to be based on an examination of the particular circumstances of the case before us 110_tc_172 we consider in particular whether there is a justifiable reason for the commissioner’s failure to originally plead the matter he seeks to amend his pleading to include and whether the taxpayer would suffer unfair surprise disadvantage or prejudice if the motion to amend were granted id and cases cited thereat there is nothing in the record that would support a finding that petitioners will suffer unfair surprise disadvantage or prejudice as a result of our granting respondent’s motion indeed petitioners have been aware of the sec_6651 additions to tax asserted against them for and since well before respondent’s filing of his motion the date notice_of_deficiency included the correct amount of the sec_6651 addition_to_tax previously assessed for although that notice incorrectly and inexplicably failed to include any amount previously assessed for this same addition_to_tax for and the form_5278 prepared by ao krstulja which ms dillon received approximately one month before this case was scheduled for trial listed amounts previously assessed for the sec_6651 additions to tax for and although the listed amount for the sec_6651 addition_to_tax for was incorrect given these previous assessments respondent presumably felt little compunction in explicitly placing them at issue in his answer particularly in the light of petitioners’ failure to specifically mention them in their petition additionally the interaction between ao krstulja and ms dillon lends credence to respondent’s claim that he did not know the sec_6651 additions to tax would be disputed until shortly before the trial session at which he filed his motion and that thus he was seeking to amend his answer as a formality and in order to clarify the record consequently it cannot be said that any filing delay was due to a failure on respondent’s part to exercise reasonable diligence finally because we did not actually try this case at the date phoenix arizona trial session and have not yet tried this case petitioners’ ability to gather and present at trial evidence of reasonable_cause in defense to the sec_6651 additions to tax has not been hampered cf estate of quick v commissioner t c pincite accordingly we will grant respondent’s motion we have considered all of the arguments made by the parties and to the extent they are not addressed herein we find them to be moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued


t c summary opinion united_states tax_court randall g and sheryl s knowles petitioners v commissioner of internal revenue respondent docket no 9401-06s filed date randall g and sheryl s knowles pro_se peter n scharff for respondent halpern judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and hereafter unless otherwise noted all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar this opinion shall not be treated as precedent for any other case by notice_of_deficiency respondent determined deficiencies in petitioners’ federal income taxes of dollar_figure and dollar_figure for their taxable calendar years and respectively the issues for decision concern certain amounts petitioners deducted in computing petitioner randall knowles’s net profit from his sole_proprietorship introduction background petitioner sheryl knowles was married to mr knowles throughout and during those years mr knowles was the sole_proprietor of an insurance sales business the business in date mr and ms knowles signed an employment contract the employment contract effective date among other things the employment contract provides that ms knowles is employed to be an office manager and for accounting services she is to be paid dollar_figure a month and mr knowles is to establish a medical reimbursement plan on date mr knowles executed the plan document for a medical reimbursement plan the medical plan effective that date all employees were eligible to participate in the medical plan under the terms of the medical plan eligible employees are entitled to reimbursement for certain medical_expenses they incur including major medical and hospital insurance premiums for the employee and family accident insurance premiums for the employee only and uninsured medical_expenses without specifying whether for the employee or the employee and family on date ms knowles executed an employee application provided by mr knowles for the medical plan electing to be covered for major medical insurance premiums for employee and family accident insurance premiums for employee only and uninsured medical_expenses without specifying whether for the employee or the employee and family on that same date mr knowles executed a document change_of primary policyholder directed to life investors regarding health insurance_policy no the life investors policy changing the name of the primary policyholder from himself to ms knowles and listing himself as dependent mr knowles executed a revised plan document for the medical plan effective date under which only full-time employees are eligible to participate in the medical plan full- time employees are defined as employees who work hours or more a week in and mr knowles paid the premiums for a medical insurance_policy the medical policy that covered both him and ms knowles during mr knowles was insured under a disability insurance_policy the disability policy providing monthly payments if mr knowles was disabled and unable to work mr knowles paid the premiums for the disability policy in mr knowles did not track or record any hours that ms knowles worked for him during or in and petitioners maintained one joint checking account for which ms knowles was the primary account_holder petitioners used this account both for personal and business purposes among the items shown in that account for and are payments to life investors for premiums similarly in and petitioners maintained one joint credit card account that was used to pay both personal and business_expenses ms knowles received no paychecks from mr knowles in either or during and ms knowles was employed full time by montana state university schedule c deductions for both and petitioners reported mr knowles’s profit from the business on a schedule c profit or loss from business attached to their form_1040 u s individual_income_tax_return on the schedule c petitioners deducted dollar_figure for disability policy premiums dollar_figure for medical policy premiums and dollar_figure for wages paid to ms knowles on the schedule c petitioners deducted dollar_figure for medical policy premiums dollar_figure for out-of-pocket medical_expenses and dollar_figure for wages paid to ms knowles tax reporting forms w-2 wage and tax statement issued by mr knowles reported that ms knowles received wages of dollar_figure and dollar_figure from him in and respectively petitioners included those amounts in gross_income on their form sec_1040 mr knowles paid social_security and medicare taxes on the wages reported for ms knowles wages and medical_expenses discussion respondent argues that the wages attributed to ms knowles were not ordinary and necessary expenses of the business in and because ms knowles was not a bona_fide employee respondent claims that the wages and medical_expenses are not an ordinary and necessary business_expense because ms knowles was not a bona_fide employee of mr knowles in those years respondent further claims that even if ms knowles was a bona_fide employee the medical_expenses are not an ordinary and necessary business_expense because ms knowles did not work at least hours a week in and as required to be covered by the medical plan finally respondent claims that if ms knowles was otherwise eligible to receive benefits under the medical plan petitioners have failed to prove that ms knowles paid_or_incurred medical_expenses in and for which she was reimbursed by the medical plan mr knowles testified convincingly as to his wife’s duties as his employee under the employment contract she categorizes expenses for the preparation of federal and state tax returns reports data using quicken computer_software provides counsel on business decisions verifies deposits reconciles the business checkbook reconciles credit card statements schedules invoice payments escorts me to business meetings and conferences chauffeurs me to business meetings and cle institutes prepares data for cpa and other office duties as assigned she also acts as the medical plan_administrator and performs various duties such as processing claims and maintaining records she entertains clients through luncheons and dinners hosted at the office the maintenance and physical upkeep of the square foot office and conference area are also part of her responsibilities and she used vacation time from her montana state university job to perform some of these duties ms knowles also testified convincingly as to her duties she explained that since she and mr knowles maintained only one checking account for their personal and the business_expenses it made no sense for mr knowles to write wage checks to her on that account that she would then deposit back into the account while we understand her reasons for that practice it clouds a situation that requires us to determine whether ms knowles was an employee in mr knowles’s business mr knowles did however report ms knowles’s wages for withholding and wage tax purposes on balance petitioners have convinced us that ms knowles was employed in mr knowles’s business during and and received wages for her labor in at least the amounts reported on the and forms w-2 and we find accordingly we also believe that ms knowles worked in the business at least hours a week in each of the years at issue mr knowles’s failure to track or record ms knowles’s work hours weighs against petitioners ms knowles nevertheless credibly testified that she worked approximately to hours a week respondent questions whether generally ms knowles’s described duties legitimately could occupy her for hours a week while the question is close we are persuaded that they could and find that they did petitioners were entitled to deduct wages reported as paid to ms knowles on the forms w-2 issued by mr knowles of dollar_figure and dollar_figure for and respectively at trial respondent conceded that the amounts claimed on petitioners’ schedule c for premiums on the medical policy and for out-of-pocket medical_expenses were actually paid for those purposes and we find accordingly we find the same for while the evidence is sparse as to whether the life investors policy is in fact the medical policy petitioners’ bank account records for and show payments to life investors for premium payments and we assume and find they are the same policy we also find that ms knowles was the primary policyholder under the medical policy during and we further find that mr knowles paid the premiums on the medical policy for and thus entitling petitioners to deduct the payments in determining the profits of the business see sec_1_162-10 income_tax regs and entitling ms knowles to exclude the payments from gross_income see sec_106 the out- of-pocket expenses are a different story there is no evidence that they were paid solely for ms knowles and with respect to the medical plan while family members are included for purposes of major medical and hospital insurance premiums reimbursement the medical plan fails to specify whether family members are included for purposes of reimbursement of uninsured medical_expenses petitioners have failed to show that the out-of- pocket medical_expenses were paid pursuant to the medical plan and are therefore deductible under sec_162 we sustain respondent’s disallowance of dollar_figure deducted on petitioners’ schedule c for out-of-pocket medical_expenses the disability policy there is a question as to who owned the disability policy during the parties have stipulated a copy of an undated application_for a disability insurance_policy from ohio national life assurance corporation cincinnati the insurance application the insurance application shows mr knowles as the proposed insured and has three boxes under the heading owner information apparently allowing a check mark to show who the owner shall be the three boxes are labeled proposed insured applicant and other print below applicant is checked although ms knowles’s name and address are printed below the box marked other print below there is no indication on the insurance application as to who the applicant is the parties have also stipulated a document that contains the policy specifications for a disability insurance_policy from ohio national life assurance corporation cincinnati the policy specifications insuring mr knowles and showing him as the owner of the policy the policy specifications show that the policy was issued on date the insurance application is ambiguous as to who is the owner of the policy ie the unnamed applicant or ms knowles we therefore rely on the policy specifications to find that mr knowles was the policy owner during we find that he was the owner during of the disability policy the policy premiums are nondeductible personal expenses see sec_262 conclusion to reflect the foregoing decision will be entered under rule


number release date id office uilc cca-715163-08 ------------ from ---------------------- sent tuesday date pm to ----------------------- cc ---------------------------- subject re nftl issue --------- ok i found the legal opinion upon which the materials below were based believe it or not this is a background material for the business_entity update for the atlanta cle based on this cca we will treat the assessment against the llc as valid against the owner however i think it is important for the nftl to specifically name the owner irs cca wl irs cca internal_revenue_service i r s irs sca service_center advisory issue_date date sec_6203 -- method of assessment method of assessment procedures sec_6303 -- notice_and_demand for tax notice_and_demand for tax sec_6321 -- lien for taxes lien right v no lien right lien for taxes lien right v no lien right sec_6323 -- validity and priority_of_lien against mortgagees pledgees purchasers and judgement creditors valid v invalid validity and priority_of_lien against mortgagees pledgees purchasers and judgement creditors valid v invalid sec_6325 -- release of lien or discharge of property release of lien or discharge of property cc pa apjp b02 gl-106892-01 memorandum for associate area_counsel small_business self-employed area - boston cc sb bos from assistant chief_counsel administrative provisions judicial practice cc pa apjp subject assessment collection procedures for employment_taxes owed by the sole owner of a single member limited_liability_company this significant service_center advice responds to your memorandum dated date in accordance with sec_6110 this significant service_center advice should not be cited as precedent the following assessment and collection issues are raised in the context of a single member limited_liability_company that chooses to separately calculate report and pay employment_tax obligations with respect to its employees under its own name and employer_identification_number ein in accordance with option of notice_99_6 1999_3_irb_12 issue sec_1 should an employment_tax assessment made in the name and ein of a single member limited_liability_company be changed to reflect the name of the company's sole owner alternatively should a new employment_tax assessment be made against the company's sole owner and if so is the company's sole owner required to have an ein what procedures should the service use to avoid making an assessment of employment_taxes in the name and ein of a single member limited_liability_company when the single member limited_liability_company is a disregarded_entity if an employment_tax assessment made in the name and ein of a limited_liability_company is changed to reflect the name of the company's sole owner or a new employment_tax assessment is made against the company's sole owner must the service notify the single member limited_liability_company or its sole owner as to the change is the issuance of notice_and_demand to a single member limited_liability_company tantamount to the issuance of notice_and_demand to the company's sole owner should the service release a notice_of_federal_tax_lien nftl previously filed against a single member limited_liability_company for delinquent employment_taxes conclusion sec_1 pursuant to sec_6203 and the regulations thereunder the summary record of assessment through supporting documents must provide identification of the taxpayer certain errors are permissible in making an assessment so long as the taxpayer is sufficiently identified and the errors do not mislead or prejudice the taxpayer thus regardless whether an assessment of a single member limited_liability_company includes the name and or taxpayer identifying number of the sole owner such an assessment is tantamount to an assessment of the sole owner we recommend that the sole owner's name be added to the assessment however adding the sole owner's name is not an acknowledgment that the assessment against the single member limited_liability_company is imperfect or incomplete in a material aspect within the meaning of sec_6204 similarly we recommend that the ein of the sole owner be added to the assessment although there is no requirement that an assessment contain an ein the sole owner must have its own ein because it is the employer moreover the ein of the sole owner will be separate and distinct from the single member limited_liability company's ein we intend to issue guidance at a later date to address this issue if the assessment is changed to reflect the sole owner's name and ein the service is under no obligation to notify the sole owner or the limited_liability_company of this change note however that if the sole owner requests a copy of the record of assessment the service is obligated to provide a copy sec_6303 requires that the service give notice_and_demand to the person liable for the unpaid tax within days after making an assessment the employer in the single member limited_liability_company context is the sole owner and is therefore the person liable for the unpaid tax thus the service must give notice_and_demand to the sole owner within days after making an assessment to the extent notice_and_demand is given to the limited_liability_company the requirement of sec_6303 is met as such notice_and_demand is tantamount to giving notice_and_demand to the sole owner sec_6323 and the regulations thereunder require only that the nftl identify the taxpayer although the particular facts in each case may be slightly different the guiding principle to be applied is that the nftl must adequately identify the taxpayer so that a reasonable and diligent title search would lead to discovery of the nftl against the sole owner thus where there is a sufficient link between the name of the limited_liability_company and its sole owner a nftl filed against the limited_liability_company will be valid against its sole owner in contrast where no such link exists the service must refile a nftl against the sole owner to protect the government's interest sec_6325 provides that a federal_tax_lien can be released in limited circumstances with the consequence that the underlying tax_liability is extinguished in cases where the nftl filed against the limited_liability_company is not valid against the sole owner because the identification of the taxpayer requirement of sec_301_6323_f_-1 is not met nonetheless the nftl should not be released note however that sec_6323 allows the service to withdraw a nftl if it fails to comply with administrative procedures eg nftl fails to identify the taxpayer thus the service should withdraw the nftl in those situations and then refile a nftl against the sole owner as the sole owner is ultimately liable for the unpaid employment_tax liability facts a single member limited_liability_company is an unincorporated entity of one or more persons having limited_liability and is formed under state law as a general_rule a limited_liability_company must register with the secretary of state in the state where it is doing business indicating its member s for all federal tax purposes a single member limited_liability company's default tax classification is that of a disregarded_entity and as a result its activities are treated in the same manner as a sole_proprietorship branch or division of its sole owner see sec_301_7701-2 as a general_rule a single member limited_liability_company that is disregarded has no tax filing obligations as all its activities are reported by the company's sole owner as an exception to the general_rule notice_99_6 1999_3_irb_12 permits a single member limited_liability_company to separately calculate report and pay its employment_tax obligations with respect to its employees under its own name and ein the notice makes clear that the owner of a single member limited_liability_company that is treated as a disregarded_entity for federal tax purposes is the employer for purposes of employment_tax liability consequently the owner retains ultimate responsibility for the employment_tax obligations incurred with respect to employees of the disregarded_entity id thus as a disregarded_entity a single member limited_liability_company cannot be the employer for employment_tax purposes regardless of the fact that it files employment_tax returns the service's current practice is to assess employment_taxes in the name and ein of the single member limited_liability_company without regard to whether the limited_liability_company being assessed is a disregarded_entity consequently a limited_liability_company that is a disregarded_entity is often assessed for the employment_tax liabilities that are the ultimate responsibility of the company's sole owner after making an assessment against a single member limited_liability_company for employment_tax liabilities owed by the company's sole owner the service issues notice_and_demand if the taxes are not paid within the time specified the service may file a nftl against the single member limited_liability_company for the delinquent employment_tax liabilities law and analysis for issue sec_1 and sec_6201 of the internal_revenue_code provides the authority for assessment until an assessment of tax has been made the service is not entitled to collect a tax administratively the lien provisions of the code depend on the making of a demand for payment and there cannot be a demand for payment if there is no assessment see sec_6303 and sec_6321 generally speaking an assessment is the formal recording of a taxpayer's tax_liability sec_6203 provides that t he assessment shall be made by recording the liability of the taxpayer in the office of the secretary in accordance with rules or regulations prescribed by the secretary the regulations on procedure and administration further provide as follows t he assessment shall be made by an assessment officer signing the summary record of assessment the summary record through supporting records shall provide the identification of the taxpayer the character of the liability assessed the taxable_period if applicable and the amount of the assessment the date of the assessment is the date the summary record is signed by an assessment officer sec_301_6203-1 emphasis added moreover t he ‘assessment ’ essentially a bookkeeping notation is made when the secretary or_his_delegate establishes an account against the taxpayer on the tax rolls 423_us_161 ndollar_figure thus to make a valid assessment the service must record the assessment on a signed summary record of assessment and create a supporting record which includes the four elements referred to in the regulation although a single member limited_liability_company is allowed to separately calculate report and pay its employment_tax obligations with respect to its employees under its own name and employer_identification_number the owner of a single member limited_liability_company is the employer and the person subject_to tax ie the taxpayer see sec_3401 a as a result the service should assess the liability for the entire amount of unpaid employment_taxes incurred by a single member limited_liability_company against the company's sole owner this would require that the service record the liability of the sole owner in accordance with sec_6203 and the regulations thereunder in particular the sole owner must be identified in regard to issue it is our position that an assessment in the name and ein of the single member limited_liability_company is in substance an assessment of the company's sole owner this is consistent with the notion that notices containing technical defects are valid where the taxpayer has not been prejudiced or misled by the error and is afforded a meaningful opportunity to litigate his claims 881_f2d_340 6th cir citing 719_f2d_1507 10th cir 386_fsupp_499 n d tex aff'd without published opinion 514_f2d_1070 5th cir given a single member limited_liability company's status as a disregarded_entity for all federal tax purposes and the close relationship between a single member limited_liability_company and its sole owner any reference in an assessment to a single member limited_liability_company as the taxpayer is tantamount to an identification of the company's sole owner as the taxpayer in substance a single member limited_liability_company is a trade_name by which the company's sole owner conducts business as in marvel v united_states supra regardless whether an assessment of a single member limited_liability_company contains the name and or taxpayer_identification_number of the sole owner such an assessment is valid against the sole owner we recommend that if the name of the company's sole owner is available the name should be added to the assessment adding the sole owner's name to an assessment should not be viewed as a supplemental assessment under sec_6204 sec_6204 is applicable only if the original assessment is imperfect or incomplete in a material aspect the addition of the sole owner's name to the assessment does not mean that the assessment against the single member limited_liability_company is imperfect or incomplete in a material respect in addition it is not necessary to add sole owner's social_security_number ssn or ein to the assessment see moore v united_states u s t c cch big_number e d cal service not required to identify a taxpayer by ssn when making an assessment 61_fsupp2d_836 s d ind ein does not have to be used in making an assessment note however that a sole owner of a single member limited_liability_company with employees is required to have an ein see irm with regard to issue we intend to issue guidance at a later date law and analysis for issue sec_3 and within days after the making of an assessment sec_6303 requires that the secretary give notice to each person liable for the unpaid tax stating the amount and demanding payment thereof in the employment_tax context the taxpayer is the employer sec_3401 defines employer as the person for whom an individual performs or performed any service of whatever nature thus in the case of a single member limited_liability_company the person liable for the unpaid tax is the sole owner accordingly after assessing the sole owner fn1 of a single member limited_liability_company the service must give notice_and_demand to the sole owner given a single member limited_liability company's status as a disregarded_entity for all federal tax purposes and its close relationship to the sole owner notice_and_demand given to the single member limited_liability_company is tantamount to giving notice_and_demand to the sole owner this conclusion is consistent with the longstanding position of the service in the partnership context where numerous courts have held that notice_and_demand given to the partnership constitutes notice_and_demand to the general partners 328_fsupp_228 d neb american surety co v sundberg u s t c cch wash s c farrow schildhause wilson v kings professional basketball club u s t c cch e d cal see also 210_f3d_281 5th cir holding that the service can collect from a partner based on tax_liens for the partnership's employment_taxes in regard to issue we note that there is no legal requirement under sec_6203 or the regulations thereunder to notify the taxpayer of an assessment or any change made to a prior assessment sec_6303 requires notice_and_demand after making the assessment and serves to ensure that a taxpayer knows an assessment has been made for a particular tax thus there is no requirement to notify the sole owner or the limited_liability_company that an assessment has been made in the sole owner's name and ein moreover the service has previously provided guidance on the effect of allowing a single member limited_liability_company to calculate report and pay the employment_taxes in this regard notice_99_6 makes clear that even when a single member limited_liability_company chooses to separately calculate report and pay all employment_tax obligations the owner retains ultimate responsibility for the employment_tax obligations incurred with respect to employees of the disregarded_entity thus although we recommend that if the name of the sole owner is available the name should be added to the assessment the service is under no obligation to send any type of notification to the limited_liability_company and the sole owner of this change the notice_and_demand given to the limited_liability_company is sufficient notification of the fact that an assessment has been made of course if the sole owner requests a copy of the record of assessment it must be provided see sec_301_6203-1 failure to pay the tax after demand for payment creates a lien in favor of the united_states which arises at the time the assessment is made i r c sec_6321 and sec_6322 the lien applies only to persons liable for the tax whose tax_liability has been properly assessed the lien created by sec_6321 is referred to as the assessment lien because it arises after the assessment and the notice_and_demand for payment of the assessment the assessment lien shall not be valid against any purchaser holder of a security_interest mechanic's lienor or judgment lien creditor until a nftl that meets the requirements of sec_6323 has been filed sec_6323 the government is protected against other creditors of the person liable for the tax by filing a nftl in the proper state or local office pursuant to sec_6323 if the nftl is not properly filed then third parties such as purchasers and holders of security interests may have priority over the government pursuant to sec_6323 sec_6323 specifies that the form and content of the nftl shall be prescribed by the secretary the regulations on procedure and administration further provide that the notice shall be filed on form_668 entitled notice_of_federal_tax_lien under internal revenue laws sec_301_6323_f_-1 a nftl must identify the taxpayer the tax_liability giving the rise to the lien and the date the assessment arose sec_301_6323_f_-1 although the regulations under sec_6323 include certain requirements for a valid nftl court cases interpreting sec_6323 indicate that certain mistakes in the nftl are permissible without the nftl thereby being considered invalid for example the court_of_appeals for the eighth circuit has indicated that a nftl filed against a husband and the business he operated with his wife was valid against the wife even though the wife was not named in the nftl 791_f2d_635 8th cir in tony thornton supra joe and mary davis operated a restaurant under the trade_name davis family restaurant after joe and mary davis failed to pay substantial employment_taxes the service made assessments and filed nftls against joe w davis and either ‘daviss restaurant’ or ‘davis's restaurant’ 'dd' f 2d pincite the nftls did not list mary davis as a taxpayer nor did the nftls identify the business as a partnership in an ensuing interpleader action a judgment lien creditor argued that the nftls were not valid against mary davis because she was not listed on the nftls the eighth circuit rejected the judgment lien creditor's argument and held that the service had substantially complied with the identification requirement by listing her husband's name and the trade_name of the business in this regard the eight circuit elaborated on the identification requirement as follows t he essential purpose of the filing of the lien is to give constructive notice of its existence the test is not absolute perfection in compliance with the statutory requirement for filing the tax_lien but whether there is substantial compliance sufficient to give constructive notice and to alert one of the government's claim tony thornton f 2d pincite citing 247_fsupp_421 s d n y thus the eight circuit concluded that a reasonable and diligent title searcher would have revealed the existence of the nftls filed under the names joe w davis and either daviss restaurant or davis's restaurant and would have determined that mary davis was a partner in the davis family restaurant we note that under state law mary davis was jointly and severally liable for the unpaid employment_taxes of the davis family restaurant a partnership in which she was a partner as additional support for concluding that certain mistakes in a nftl are permissible we note that although a nftl contains the nickname of the taxpayer the nftl may nonetheless be valid hannus v united_states u s t c cch w d wash the withholding taxes at issue in hannus were assessed and the nftl was filed against andy johnston construction company -- andy johnston owner the nftl was recorded under both the name andy johnston construction company and andy johnston the court noted that at the time the tax_liability was incurred assessed and nftl filed andrew johnston was known in the community as andy johnston and did business as the andy johnston construction company a sole_proprietorship moreover andrew johnston filed federal tax returns under the name of andy johnston and the andy johnston construction company the court concluded that the nftl was sufficient to charge a prospective purchaser of the property with notice of the existence of a lien on the property as the name andy johnston was the working and occupational name under which andrew johnston conducted business and a person of ordinary intelligence would recognize that andy is derived from the name andrew id the guiding legal principle to be taken from cases such as hannus and tony thornton is that the name on the nftl must be sufficient to put a third party on notice of a lien outstanding against the taxpayer see also irm such a determination will depend on the facts and circumstances in each particular case while a third party may not be certain that a limited_liability_company is a disregarded_entity the substantial compliance test does not require that the taxpayer be precisely identified instead the substantial compliance test is met when the third party examining the public record is alerted to the possibility of the federal_tax_lien and the third party must take additional steps to determine whether the federal_tax_lien encumbers the assets in question see tony thornton f 2d pincite see also whiting-turner a l johnson v p d h development inc u s t c cch big_number m d ga holding that where the service filed a nftl under a name substantially identical to the taxpayer's name a reasonable title searcher must take additional steps to discover the identity of the taxpayer moreover the service has indicated that some errors such as a wrong taxpayer_identification_number or tax period will not invalidate the nftl while the use of an incorrect name may make the nftl invalid irm irm for example assume that a nftl is filed in the name of j doe llc where the name of the limited_liability_company is similar to that of the sole owner in that situation the nftl is valid against john doe the nftl identifies_the business as a limited_liability_company and provides a link to the taxpayer's name it is reasonable to assume that j doe could be an individual having some link to the limited_liability_company thus a third party could search the limited_liability_company records of the secretary of state to determine the identity of the sole owner also state records might identify the business address of the limited_liability_company and a reasonable and diligent title search would reveal the existence of the nftl against john doe filed under the name j doe llc in contrast however if the name of the limited_liability_company is eagle llc and the name of the sole owner is john jones we would conclude that the nftl listing eagle llc as the taxpayer fails to substantially comply with the notice requirements of sec_6323 a diligent title searcher would have no reason to believe a link existed between eagle llc and john jones and would not investigate any further thus the nftl filed against eagle llc would be invalid against john jones once it is determined that the nftl contains an error the service should refile the nftl with the correct name of the taxpayer if the period of limitations is still open consequently service would then need to refile a nftl against john jones to protect the government's priority interest as t he sine qua non of sec_6323 is notice to subsequent takers of the existence of the irs lien 705_fsupp_446 c d ill it is important to note that the service generally cannot levy on the limited_liability company's assets as the sole owner is the person liable for the unpaid employment_tax liabilities ie the taxpayer a release of lien is only warranted in the following circumstances the liability for the amount assessed with interest has been fully satisfied or has become legally unenforceable or a bond is furnished to the service guaranteeing payment of the amount assessed with interest within the period of limitations on collection sec_6325 we note that the release of a federal_tax_lien extinguishes the underlying assessment lien sec_6325 in situations where the service refiles the nftl against the sole owner the nftl filed against the single member limited_liability_company should not be released as the service does not seek to extinguish the underlying assessment lien in contrast the service may withdraw a nftl without extinguishing the underlying assessment lien withdrawal of a nftl is warranted if the service determines that one of the following conditions is met the filing of the nftl was premature or otherwise not in accordance with administrative procedures the taxpayer has entered into an installment_agreement under sec_6159 unless the agreement provides otherwise withdrawal of the nftl will facilitate collection of the liability or withdrawal of the nftl is in the best interests of the taxpayer as determined by the national_taxpayer_advocate and the united_states sec_6323 a - d irm a - d in order to withdraw the nftl the service must provide a copy of the withdrawal to the taxpayer sec_6323 thus if the nftl lists eagle llc as the taxpayer and the name of the sole owner is john jones the service should withdraw the nftl as it fails to comply with the service's administrative procedures consequently the service should refile the nftl reflecting john jones as the taxpayer we note that some courts have rejected the substantial compliance test and instead require that the nftl must give the taxpayer's correct name in order to meet the identification requirement see eg in re focht u s t c big_number w d pa 705_fsupp_446 c d iii 378_fsupp_1028 w d mo courts following this approach would find that a nftl filed against j doe llc is invalid as to sole owner john doe for failing to identify john doe as the taxpayer even if a court follows the substantial compliance test and finds that a nftl filed against the limited_liability_company is valid against the sole owner there is no guarantee that under the facts and circumstances of a particular case the court would conclude that a valid nftl has been filed as to all of the sole owner's property for example in hudgins v 132_br_115 e d va aff'd as modified and remanded 967_f2d_973 4th cir michael hudgins incorporated his business as hudgins masonry inc and filed corporate tax returns under that name in however the commonwealth of virginia terminated the corporate charter for failure to pay state fees notwithstanding the termination michael hudgins still filed corporate tax returns as hudgins masonry inc in the service filed a nftl against hudgins masonry inc for delinquent employment_taxes in subsequent litigation the question was whether the service's nftl was valid against michael hudgins in his individual capacity in holding that the nftl was valid as to the business_assets of michael hudgins the court_of_appeals for the fourth circuit acknowledged that a purchaser of michael hudgins' business_assets would certainly have known that hudgins traded as ‘hudgins masonry inc ’ and finding a lien against ‘hudgins masonry inc ’ would have taken further steps to determine if the assets were encumbered hudgins f 2d pincite the court however then proceeded to hold that the nftl was invalid as to michael hudgins' non-business assets id the court reasoned that a diligent title searcher would have concluded that a nftl filed against a defunct corporation did not provide constructive notice as to michael hudgins' non-business assets while we do not agree with the fourth circuit's approach in hudgins of bifurcating assets into business and non-business property it is binding precedent in the fourth circuit and other courts may choose to follow it if you have questions please contact susan l hartford at curtis g wilson by michael l gompertz assistant to the branch chief branch fn1 as discussed above under issue sec_1 and an assessment of a single member limited_liability_company is tantamount to an assessment of the sole owner this document may not be used or cited as precedent sec_6110 of the internal_revenue_code irs cca wl irs cca