Court Opinion

ID: 4395591
Source: CourtListenerOpinion
Date Created: 2019-05-10 05:01:29.938965+00
Date Added: 2024-06-11T14:52:07.260351
License: Public Domain

152 T.C. No. 14

                  UNITED STATES TAX COURT

           DAF CHARTERS, LLC, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21317-14L.                        Filed May 9, 2019.

       P is a Florida limited liability company that is wholly owned by
a Cayman Islands corporation. As such and not electing otherwise, it
is disregarded as an entity separate from its owner for most Federal
tax purposes. See sec. 301.7701-2(c)(2)(i), Proced. & Admin. Regs.
However, it is not disregarded as an entity separate from its owner
and instead is treated as a corporation for Federal employment tax
purposes. See id. subdiv. (iv)(A) and (B).

       During the taxable period ending Dec. 31, 2012, P operated a
charter yacht, registered in the Cayman Islands, that traveled in and
out of the United States and its territorial waters, and P employed
U.S. citizens as crewmen for the yacht. P filed a timely employment
tax return for the period but did not pay employment taxes on the
wages it paid to those employees, claiming that those wages were
exempt from employment taxes under the “crewmen’s exemption” of
I.R.C. sec. 3121(b)(4) because P was not an “American employer”
under I.R.C. sec. 3121(h). The definition of an “American
employer”, however, includes “a corporation organized under the
                                         -2-

      laws of the United States or of any State.” I.R.C. sec. 3121(h)(5). R
      assessed the applicable amount of employment taxes and notified P
      that he intended to levy to collect the outstanding liability. In
      response P requested and received a collection due process hearing
      under I.R.C. sec. 6330, following which R upheld the proposed levy.

            Held: Because P is treated as a corporation for employment tax
      purposes, sec. 301.7701-2(c)(2)(iv)(B), Proced. & Admin. Regs., and
      was organized under the laws of a State, P was an American employer
      under I.R.C. sec. 3121(h) and thus was not entitled to the crewmen’s
      exemption of I.R.C. sec. 3121(b)(4). Hence, P is liable for
      employment taxes on wages paid during the taxable period ending
      Dec. 31, 2012, and R may proceed with the proposed collection
      action against P with respect to this liability.

      Glen A. Stankee, for petitioner.

      Brandon S. Cline and Kenneth A. Hochman, for respondent.

                                    OPINION

      ASHFORD, Judge: This collection due process (CDP) case brought under

section 6330(d)(1)1 is before the Court on cross-motions for summary judgment.

      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code (Code) in effect at all relevant times, and all Rule references are to
the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to
the nearest dollar.
                                        -3-

As explained below, we will deny summary judgment for petitioner and grant

respondent’s cross-motion.

                                    Background

      The facts set forth herein are not in dispute and are derived from the parties’

pleadings, motion papers, and supporting materials attached to the motion papers.

See Rule 121(b). At the time the petition was filed, petitioner’s principal place of

business was in Florida.

      Petitioner is a limited liability company organized in the State of Florida

whose sole member is a corporation, DAF Charters, Ltd., organized in the Cayman

Islands. Petitioner was formed on August 15, 2011, at which time its sole member

and manager was John Staluppi, a U.S. citizen. Mr. Staluppi transferred his

membership interest to DAF Charters, Ltd., on May 8, 2012, but remains

petitioner’s manager.2

      During the taxable period ending December 31, 2012 (period at issue),

petitioner owned and operated a charter yacht, christened Diamonds Are Forever,

      2
       Petitioner filed an annual report with the Florida secretary of state on
January 2, 2013, still listing Mr. Staluppi as its sole member and did not file an
amended report listing DAF Charters, Ltd., as its sole member until July 10, 2013.
Petitioner does not address this discrepancy, but the parties agree that Mr. Staluppi
actually transferred his membership interest on May 8, 2012.
                                          -4-

that traveled in and out of the United States and its territorial waters.3 The yacht

was registered in the Cayman Islands on January 5, 2012, before which it was

registered in the United States. Petitioner employed crewmen for the yacht, all of

whom were U.S. citizens.

      Petitioner timely filed Form 941, Employer’s Quarterly Federal Tax Return,

for the period at issue, on which it claimed that the wages it paid to its crewmen

were exempt from employment taxes.4

      On March 18, 2013, the Internal Revenue Service (IRS) sent petitioner a

Notice CP102 advising that changes had been made to its Form 941 for the period

at issue because of a “miscalculation” on the form, resulting in tax due of $6,872

plus interest.5 In response to this notice petitioner filed Form 941-X, Adjusted

Employer’s Quarterly Federal Tax Return or Claim for Refund, seeking abatement

of the resulting assessment on the grounds that it was entitled to the “crewmen’s

      3
          Petitioner sold the yacht at some point in 2013.
      4
        The Code (specifically, the Federal Insurance Contributions Act, secs.
3101-3128) imposes taxes on both employees and employers for wages received
and paid, but employers collect and remit all of these taxes. See infra p. 12. We
refer to these taxes collectively as “employment taxes” throughout this Opinion.
      5
       The IRS immediately assessed this amount. The IRS is authorized to do
this because the employment taxes at issue here, i.e., employment taxes imposed
by subtitle C of the Code, are not subject to deficiency procedures under secs.
6211-6216. See sec. 6201.
                                         -5-

exemption” of section 3121(b)(4), under which wages paid by a foreign employer

to U.S. crewmen serving on a foreign vessel when the vessel is outside the United

States are not subject to employment taxes. The IRS denied petitioner’s abatement

claim, and thereafter petitioner filed a protest with the IRS Office of Appeals

(Appeals) requesting reconsideration.

      On June 12, 2013, while petitioner’s protest was pending, the IRS sent

petitioner a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right

to a Hearing (levy notice). The levy notice advised petitioner that the IRS

intended to levy to collect the outstanding liability for the period at issue. In

response to the levy notice petitioner timely submitted Form 12153, Request for a

Collection Due Process or Equivalent Hearing (CDP hearing request). In its CDP

hearing request petitioner did not indicate that it was seeking any collection

alternatives; instead, as set forth in a document attached to its CDP hearing

request, petitioner asserted that it was challenging the underlying liability on the

grounds that it was entitled to the crewmen’s exemption and noted that its protest

of the denial of its abatement claim remained pending with Appeals. Petitioner

requested that a CDP hearing be held with its authorized representative.

      On February 26, 2014, Appeals held a telephone CDP hearing with

petitioner’s authorized representative. During the hearing petitioner’s authorized
                                          -6-

representative disputed petitioner’s underlying tax liability for the period at issue,

reiterating its legal argument that it was entitled to the crewmen’s exemption.

Petitioner’s authorized representative also advised the Appeals settlement officer

conducting the hearing that petitioner was not interested in seeking a collection

alternative and that if it received an adverse ruling on its protest, it would prefer a

promptly issued notice of determination for which it could seek review in this

Court.

         On July 21, 2014, the Appeals officer handling petitioner’s protest emailed

the Appeals settlement officer handling petitioner’s CDP hearing request

informing her that she was closing petitioner’s case and sustaining the denial of

petitioner’s abatement claim on the basis that it did not qualify for the crewmen’s

exemption because petitioner, a single-member limited liability company

organized under the laws of the State of Florida, was regarded as an entity and

treated as a corporation for employment tax purposes and thus met the definition

of “American employer” under section 3121(h).

         On August 13, 2014, the Appeals settlement officer and petitioner’s

authorized representative spoke by telephone. The settlement officer informed

him of Appeals’ disposition of petitioner’s protest and inquired whether petitioner

wished to pursue any collection alternatives. Petitioner’s authorized
                                        -7-

representative reiterated that petitioner did not wish to pursue any collection

alternatives and that a notice of determination should be issued for which

petitioner could seek review in this Court.

      The settlement officer determined that the proposed levy should be

sustained, and on August 26, 2014, Appeals sent petitioner (with a copy to its

authorized representative) a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 to that effect (notice of determination).

A summary detailing the matters considered by Appeals and its conclusions was

attached to the notice of determination and included the following explanations:

                   SUMMARY AND RECOMMENDATION

      The Final Notice, Notice of Intent to Levy, was properly issued and
      proposed levy action is sustained because you were not interested in
      negotiating collection alternatives and disagree with the tax due.
      Your request for abatement of the tax assessment is denied.

      *           *           *           *           *           *           *

                 LEGAL AND ADMINISTRATIVE REVIEW

      * * * [The settlement officer] verified the requirements of any
      applicable law or administrative procedure were met. * * *

      *           *           *           *           *           *           *
                                        -8-

                             ISSUES YOU RAISED

      Collection Alternatives Requested
      You offered no alternatives to collection.

      Challenges to the Liability
      You disagree with your liability because you claim not to be an
      American employer subject to employment taxes. Your challenge to
      the existence or amount of the underlying liability was assigned to
      Appeals Office [sic] G. Rodrigo who determined you are liable for the
      employment tax. Regulation § 301.7701-2(c)(iv) treats single
      member Limited Liability Companies (SMLLCs) as corporations for
      all employment tax purposes. Section 3121(h) of the Code defines an
      “American Employer” to include a corporation organized under the
      laws of the United States or of any State. Section 3121(h) falls under
      the regulations to determine whether the employer is an American
      employer. You are a SMLLC created in the State of Florida;
      therefore, you are an American Employer under Section 3121(h)(5)
      and subject to employment taxes.

      You raised no other issues.

                           BALANCING ANALYSIS

      Sustaining proposed levy action balances the need for efficient
      collection of tax with your concern that collection is no more
      intrusive because you would not consider collection alternatives and
      we have determined you are liable for the employment tax subject to
      these proceedings.

      Petitioner timely filed a petition with this Court for review of the notice of

determination.
                                         -9-

                                      Discussion

I.    Standard of Review

      The purpose of summary judgment is to expedite litigation and avoid

unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678,

681 (1988). Summary judgment may be granted where the moving party shows,

through “the pleadings * * * and any other acceptable materials, together with the

affidavits or declarations, if any, * * * that there is no genuine dispute as to any

material fact and that a decision may be rendered as a matter of law.” Rule 121(b);

see Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d
965 (7th Cir. 1994). The parties agree on all material facts necessary to resolve

the purely legal questions that this case presents. Consequently, this case is

appropriate for summary adjudication.

      Under section 6331(a), if any person liable to pay any tax neglects or

refuses to do so after notice and demand, the Commissioner is authorized to

collect the unpaid amount by way of a levy upon all property and rights to

property belonging to such person or upon which there is a lien. Pursuant to

section 6330(a), the Commissioner must provide the person with written notice of

and an opportunity for an administrative hearing to review the proposed levy.
                                        - 10 -

      If an administrative hearing is requested in a levy case, the hearing is to be

conducted by Appeals. Sec. 6330(b)(1). At the hearing the Appeals officer

conducting it must obtain verification that the requirements of applicable law and

administrative procedure have been met. Sec. 6330(c)(1). The taxpayer may raise

at the hearing any relevant issue relating to the unpaid tax or the proposed

collection action including spousal defenses, challenges to the appropriateness of

the proposed collection action, and collection alternatives. Sec. 6330(c)(2)(A).

Following the hearing the Appeals officer must determine among other things

whether the proposed collection action is appropriate. In reaching the

determination the Appeals officer must take into consideration: (1) whether the

requirements of applicable law and administrative procedure have been met, (2) all

relevant issues raised by the taxpayer including offers of collection alternatives,

and (3) whether any proposed collection action balances the need for the efficient

collection of taxes with the legitimate concern of the taxpayer that collection be no

more intrusive than necessary. Sec. 6330(c)(3); see also Lunsford v.

Commissioner, 117 T.C. 183, 184 (2001).

      Section 6330(d)(1) grants this Court jurisdiction to review the determination

made by Appeals in a levy case. See also Callahan v. Commissioner, 130 T.C. 44,

48 (2008). If the taxpayer files a timely petition for such judicial review, the
                                        - 11 -

applicable standard of review depends on whether the underlying tax liability is at

issue. Where the taxpayer’s underlying tax liability is properly at issue, the Court

reviews the liability determination de novo. Sego v. Commissioner, 114 T.C. 604,

610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). The Court

reviews administrative determinations made by Appeals regarding nonliability

issues for abuse of discretion. Sego v. Commissioner, 114 T.C. 610; Goza v.

Commissioner, 114 T.C. 182.

      A taxpayer may challenge his underlying tax liability during a CDP hearing

(and thereafter in this Court) if he did not receive a notice of deficiency with

respect to the liability or did not otherwise have an earlier opportunity to dispute

the liability. See sec. 6330(c)(2)(B); sec. 301.6330-1(e)(3), Q&A-E2, Proced. &

Admin. Regs.; see also Kuykendall v. Commissioner, 129 T.C. 77, 80 (2007);

Sego v. Commissioner, 114 T.C. 609; Shere v. Commissioner, T.C. Memo.

2008-8, slip op. at 10. Petitioner’s underlying liability for the period at issue was

not subject to the IRS’ deficiency procedures, and it did not have a prior

opportunity to challenge the liability.6 Accordingly, to the extent the underlying

      6
       We note that petitioner’s pending protest with Appeals did not preclude it
from disputing its underlying liability for the period at issue in the concurrent CDP
hearing (and accordingly, now in this Court). See Perkins v. Commissioner, 129
T.C. 58, 65-67 (2007).
                                        - 12 -

liability is at issue, we will review Appeals’ determination de novo; we will

review Appeals’ administrative determination sustaining the proposed levy for

abuse of discretion.

II.   Challenge to Underlying Liability

      This case presents a question of statutory interpretation (which is an issue of

first impression in this Court), so we begin as we always must with the relevant

statutory text.

      A.     Employment Taxes

      The Federal Insurance Contributions Act (FICA), codified in subtitle C of

the Code, sections 3101-3128, imposes employment taxes (specifically, for “[o]ld-

age, survivors, and disability insurance” and for “[h]ospital insurance”) on all

wages received by individuals with respect to employment and requires employers

to collect and remit these amounts on their employees’ behalf. Secs. 3101(a) and

(b), 3102(a). FICA also imposes employment taxes (technically, as excise taxes)

in equal amounts on all wages paid by employers with respect to employment.

Sec. 3111(a) and (b). Employers subject to these taxes report and pay them

quarterly. See sec. 31.6011(a)-1(a)(1), Employment Tax Regs.
                                        - 13 -

      The Code defines “employment” subject to these taxes as follows:

             SEC. 3121(b). Employment.-- For purposes of this chapter, the
      term “employment” means any service, of whatever nature, performed
      (A) by an employee for the person employing him, irrespective of the
      citizenship or residence of either, (i) within the United States, or
      (ii) on or in connection with an American vessel or American aircraft
      under a contract of service which is entered into within the United
      States or during the performance of which and while the employee is
      employed on the vessel or aircraft it touches at a port in the United
      States, if the employee is employed on and in connection with such
      vessel or aircraft when outside the United States, or (B) outside the
      United States by a citizen or resident of the United States as an
      employee for an American employer (as defined in subsection
      (h)) * * *

However, section 3121(b)(4) specifically excepts from this definition

      service performed by an individual on or in connection with a vessel
      not an American vessel, or on or in connection with an aircraft not an
      American aircraft, if (A) the individual is employed on and in
      connection with such vessel or aircraft, when outside the United
      States and (B)(i) such individual is not a citizen of the United States
      or (ii) the employer is not an American employer.

This exception is known as the “crewmen’s exemption”.

      The parties agree that during the period at issue (1) petitioner paid wages to

its employees for services performed on or in connection with petitioner’s vessel,

(2) petitioner’s vessel was not an American vessel,7 (3) petitioner’s employees

      7
          The Code defines the term “American vessel” as follows:

               SEC. 3121(f). American Vessel and Aircraft.--For purposes of
                                                                     (continued...)
                                          - 14 -

were employed on and in connection with petitioner’s vessel when it was outside

the United States, and (4) petitioner’s employees were citizens of the United

States. The parties’ sole dispute is whether petitioner was an “American

employer” during the period at issue. If it was, then section 3121(b) applies and

the section 3121(b)(4) crewmen’s exemption does not, and petitioner is liable for

employment taxes on all wages it paid to its employees, regardless of where

services were performed. If it was not, then the section 3121(b)(4) crewmen’s

exemption does apply, and petitioner is not liable for employment taxes on any

wages it paid to its employees, regardless of where services were performed.

      The Code defines an “American employer” as an employer which is:

“(1) the United States or any instrumentality thereof, (2) an individual who is a

resident of the United States, (3) a partnership, if two-thirds or more of the

partners are residents of the United States, (4) a trust, if all of the trustees are

      7
       (...continued)
      this chapter, the term “American Vessel” means any vessel
      documented or numbered under the laws of the United States;
      and includes any vessel which is neither documented or numbered
      under the laws of the United States nor documented under the laws of
      any foreign country, if its crew is employed solely by one or more
      citizens or residents of the United States or corporations organized
      under the laws of the United States or of any State * * *

Because petitioner’s vessel was registered under the laws of the Cayman Islands
during the period at issue, it did not fall under this definition.
                                        - 15 -

residents of the United States, or (5) a corporation organized under the laws of the

United States or of any State.” Sec. 3121(h); see also sec. 31.3121(h)-1,

Employment Tax Regs. (reiterating statutory rule).8 Neither section 3121 nor any

other provision in subtitle C of the Code separately defines “corporation”.

      B.     Entity Classification

      Section 7701(a) provides that “[w]hen used in this title, where not otherwise

distinctly expressed or manifestly incompatible with the intent thereof * * * [t]he

term ‘corporation’ includes associations, joint-stock companies, and insurance

companies.” Sec. 7701(a)(3). This definition is explicitly nonexclusive, however,

pursuant to section 7701(c), which provides that “[t]he terms ‘includes’ and

‘including’ when used in a definition contained in this title shall not be deemed to

exclude other things otherwise within the meaning of the term defined.” See also

McNamee v. Dep’t of the Treasury, 488 F.3d 100, 106-107 (2d Cir. 2007) (noting

that limited liability companies are not listed in section 7701).

      8
       The Code does not separately define “employer” for purposes of
employment taxes but does define it broadly for purposes of unemployment
insurance payments, sec. 3306(a), and Federal income tax withholding
responsibilities, sec. 3401(d), as any person who pays wages or otherwise engages
individuals in employment. The Supreme Court has interpreted the term in the
employment tax context similarly broadly. See Otte v. United States, 419 U.S. 43,
51 (1974). In any event neither party here disputes that petitioner was an
employer for employment tax purposes, only whether it was an “American
employer” for purposes of sec. 3121.
                                        - 16 -

      The Department of the Treasury has promulgated regulations under section

7701 that elaborate on the definitions of section 7701(a) to provide clear

guidelines for classifying various forms of business entities. See T.D. 8697, 1997-

1 C.B. 215; see also Littriello v. United States, 484 F.3d 372, 375-376 (6th Cir.

2007); Pierre v. Commissioner, 133 T.C. 24, 30-32 (2009) (discussing history of

entity classification and earlier regulations), supplemented by T.C. Memo. 2010-

106. Known as the “check-the-box” regulations, these regulations generally grant

broad discretion to business owners, who can often elect (by “checking the box”

for a certain entity type on a form filed with the IRS, hence the name) whether an

entity through which they conduct business is treated as an association (i.e., a

corporation), a partnership, or a “disregarded” entity for Federal tax purposes.

Sec. 301.7701-3(a), Proced. & Admin. Regs.; see McNamee, 488 F.3d at 109

(upholding the check-the-box regulations as a valid exercise of the IRS’

authority); Littriello, 484 F.3d at 378 (same); Med. Practice Sols., LLC v.

Commissioner, 132 T.C. 125, 129-130 (2009) (same), aff’d without published

opinion sub nom. Britton v. Shulman, 106 A.F.T.R.2d (RIA) 2010-6048 (1st Cir.

2010).

      The check-the-box regulations do not always grant entity owners a choice,

though, listing some types of entities (much more extensively than in section
                                        - 17 -

7701(a)(3) itself) that are irrevocably considered corporations. See sec. 301.7701-

2(b), Proced. & Admin. Regs. Entities not in this list may elect their treatment,

and the regulations provide default options for entities that fail to choose. See sec.

301.7701-3(b), Proced. & Admin. Regs. In particular, a domestic entity that is not

a corporation and has a single owner is disregarded as an entity separated from its

owner unless the owner elects otherwise. See secs. 301.7701-2(c)(2)(i) and

301.7701-3(b)(1)(ii), Proced. & Admin. Regs. The regulations define an entity as

domestic “if it is created or organized as any type of entity (including, but not

limited to, a corporation, unincorporated association, general partnership, limited

partnership, and limited liability company) in the United States, or under the law

of the United States or of any State.” Sec. 301.7701-5(a), Proced. & Admin. Regs.

      The effect of being disregarded is that, in general, the entity is treated as a

sole proprietorship or branch of its owner. See sec. 301.7701-2(a), Proced. &

Admin. Regs. Although the entity may be recognized separately from its owner

under State or other Federal law, any items of income and loss generated by the

entity are directly attributable to and reported by the entity’s owner for Federal tax

purposes, and the entity is not subject to corporate income tax or any partnership

or S corporation income allocation rules, all of which are codified under subtitle A

of the Code.
                                        - 18 -

      However, the check-the-box regulations provide a specific exception for

Federal employment tax purposes. Instead of attributing employment tax liability

to a disregarded entity’s owner, the regulations state that “paragraph (c)(2)(i) of

this section (relating to certain wholly owned entities) does not apply to taxes

imposed under Subtitle C--Employment Taxes and Collection of Income Tax” and

that “an entity that is disregarded as an entity separate from its owner for any

purpose under this section is treated as a corporation with respect to taxes imposed

under Subtitle C--Employment Taxes and Collection of Income Tax”. Sec.

301.7701-2(c)(2)(iv)(A) and (B), Proced. & Admin. Regs. In other words, a

disregarded entity is treated as a separate entity for purposes of employment taxes

imposed under subtitle C and, in addition, the separate entity is treated as a

corporation for purposes of employment taxes imposed under subtitle C and

related reporting requirements.

      This exception was added to the check-the-box regulations in 2007, see

T.D. 9356, 2007-2 C.B. 675, and section 301.7701-2(c)(2)(iv)(A), Proced. &

Admin. Regs., is applicable to wages paid on or after January 1, 2009, and section

301.7701-2(c)(2)(iv)(B), Proced. & Admin. Regs., is applicable to wages paid on
                                       - 19 -

or after September 14, 2009,9 see sec. 301.7701-2(e)(5), Proced. & Admin. Regs.

Before then, the owner of a disregarded entity was ultimately liable for

employment taxes on wages paid by the entity but could choose whether the owner

or the entity would be responsible for calculation, reporting, and payment of that

liability. Notice 99-6, 1999-1 C.B. 321. The Department of the Treasury’s

      9
        On November 1, 2011, in order to extend the FICA and Federal
Unemployment Tax Act exceptions for family members and religious sect
members to certain entities that are disregarded as separate from their owners for
Federal tax purposes under sec. 301.7701-2(c), Proced. & Admin. Regs., and to
clarify the existing rule that the owner of a disregarded entity for Federal tax
purposes under sec. 301.7701-2(c), Proced. & Admin. Regs., is subject to backup
withholding (i.e., the withholding requirements imposed under sec. 3406), the
Department of the Treasury amended, among other regulations, sec. 301.7701-2,
Proced. & Admin. Regs. See T.D. 9554, 2011-50 I.R.B. 843. It revised (and made
“[r]eserved”) sec. 301.7701-2(c)(2)(iv)(A), Proced. & Admin. Regs., and added
sec. 301.7701-2T(c)(2)(iv)(A), Temporary Proced. & Admin. Regs., 76 Fed. Reg.
67366 (Nov. 1, 2011). T.D. 9554, 2011-50 I.R.B. at 846. However, the first
sentence of sec. 301.7701-2(c)(2)(iv)(A), Proced. & Admin. Regs., was retained in
sec. 301.7701-2T(c)(2)(iv)(A), Temporary Proced. & Admin. Regs., supra. T.D.
9554, 2011-50 I.R.B. at 846. On July 14, 2014, the Department of the Treasury
finalized the November 1, 2011, amendments without substantive change and
retaining the 2009 applicability dates. T.D. 9670, 2014-29 I.R.B. 121. The
preamble to these final regulations notes that

      [s]ection 301.7701-2(c)(2)(iv)(A) continues to provide that
      § 301.7701-2(c)(2)(i) (relating to certain wholly owned entities) does
      not apply to taxes imposed under Subtitle C. Section 301.7701-
      2(c)(2)(iv)(B) also continues to provide that an entity that is
      disregarded as an entity separate from its owner for any purpose
      under § 301.7701-2 is treated as a corporation for purposes of taxes
      imposed under Subtitle C. [Id. at 122.]
                                        - 20 -

rulemaking eliminated this choice and eliminated a disregarded entity’s owner’s

liability for employment taxes; now, the entity alone is liable. T.D. 9356, 2007-2

C.B. at 676.

      C.       Analysis

      Applying the check-the-box regulations to petitioner is relatively

straightforward. As a limited liability company with a single owner that has not

elected otherwise, petitioner is automatically disregarded as an entity separate

from its owner for most Federal tax purposes. See sec. 301.7701-2(c)(2)(i),

Proced. & Admin Regs. As a result, petitioner need not worry about Federal

income tax, as any income or loss it generates from its operations is attributed to

its owner. However, for employment tax purposes, this default classification does

not apply, id. subdiv. (iv)(A); petitioner must determine the extent of its potential

liability for employment taxes under FICA, separately resolving any issues of

entity classification that may arise under the applicable provisions.

      Petitioner contends that it is not liable for employment taxes for the period

at issue. Its contention hinges on whether it is an “American employer” as defined

in section 3121(h), and in particular whether it is an employer which is a

“corporation organized under the laws of the United States or of any State.” See

supra pp. 14-15. If petitioner is a “corporation” for purposes of section
                                         - 21 -

3121(h)(5), then it is an American employer and section 3121(b) applies and the

section 3121(b)(4) crewmen’s exemption does not.

      Because neither section 3121 nor any other provision in subtitle C of the

Code gives a specific definition of “corporation”, we refer to the definition

provided in section 7701 (which, see supra p. 15, applies throughout the Code

when not specifically preempted) and, importantly, its elaboration in the

regulations promulgated under that section, i.e., the check-the-box regulations. In

this regard the check-the-box regulations explicitly provide that petitioner,

notwithstanding it being a disregarded entity under section 301.7701-2(c)(2)(i),

Proced. & Admin. Regs., is treated as a corporation with respect to employment

taxes.10 Sec. 301.7701-2(c)(2)(iv)(B), Proced. & Admin. Regs. It is undisputed

      10
          We find additional support for our analysis in that it gives specific effect
to both subdivisions A and B of sec. 301.7701-2(c)(2)(iv), Proced. & Admin.
Regs., even though they could be easily read as redundant. Under our
interpretation, subdivision A assures that a disregarded entity, informed that its
disregarded status does not apply for employment taxes, will at least undertake an
initial inquiry under FICA to determine if it has any liability, while subdivision B
provides that if, during this inquiry, the entity faces a question of classification
(such as under sec. 3121(h)), it will know that it is unequivocally a corporation for
such purposes. For example, a disregarded entity that engages only self-employed
independent contractors for its services would need only to consider subdivision A
to reach the determination that it is not liable for employment taxes, whereas the
situation in this case would be significantly more difficult to resolve in the
absence of subdivision B; although petitioner would not be disregarded from its
owner for employment tax purposes, the regulations would not provide any
                                                                          (continued...)
                                        - 22 -

that petitioner was organized under the laws of the State of Florida. Therefore,

petitioner was an American employer under section 3121(h) for the period at issue

and as such, it is subject to section 3121(b) and the section 3121(b)(4) crewmen’s

exemption does not apply.11

      Petitioner contends that section 3121(h) does not depend directly on an

entity’s classification under the check-the-box regulations but instead first

imposes its own test based on the residence(s) of the entity’s owner(s). Because

petitioner’s sole owner during the period at issue was a foreign corporation,

      10
        (...continued)
specific guidance as to its actual classification for purposes of sec. 3121(h), and
we would resort to the common law and other considerations. Cf. Pierre v.
Commissioner, 133 T.C. 24, 35 (2009), supplemented by T.C. Memo. 2010-106.
      11
         Reaching this result through regulatory manipulation of a statutory
definition so that a word used in different parts of the Code has different meanings
is admittedly awkward but hardly unprecedented. In interpreting the Code we
have routinely held that the same word used in different contexts may have
different meanings so as to best effect the intentions of the legislative and
regulatory drafters, see, e.g., Estate of Nienhuys v. Commissioner, 17 T.C. 1149,
1161 (1952); Oman v. Commissioner, T.C. Memo. 2010-276, slip op. at 23 (citing
Conforte v. Commissioner, 692 F.2d 587, 591 (9th Cir. 1982), aff’g in part, rev’g
in part and remanding 74 T.C. 1160 (1980)), and we find that our interpretation
inarguably does so in this case. Such situations are precisely the reason why the
Department of the Treasury added sec. 301.7701-2(c)(2)(iv), Proced. & Admin.
Regs., to the check-the-box regulations; because there would be no question as to
whether petitioner is liable for employment taxes if it were actually a corporation,
the regulations treat it as a corporation so as not to allow it to avoid paying
employment taxes solely through its disregarded entity status.
                                        - 23 -

petitioner contends that it thus could not logically have been an “American

employer”. Petitioner draws support for this interpretation from section

3121(h)(3) and (4), which applies such residence tests to partnerships and trusts.

But this argument only draws attention to these tests’ distinction from section

3121(h)(5), which looks instead only at the jurisdiction in which a corporation is

organized, without regard to its owner(s). While the plain text of the statute alone

is sufficient to reach this conclusion, we also find good reasons for drawing such a

distinction; almost all entities that the Code and regulations treat as corporations

(or that elect to be treated as corporations) are specifically organized under the

laws of some jurisdiction, but partnerships and trusts can exist at common law or

simply in fact as an ongoing enterprise with multiple interested parties and no

explicit legal form. See sec. 301.7701-1(a)(2), Proced. & Admin. Regs. As a

result it is reasonable to presume that Congress determined that for section

3121(h) the most relevant and accurate basis on which to judge a corporation is its

legal nexus, while for partnerships and trusts it is their owners’ residential

nexuses.

      Petitioner further argues that declining to read a residence test into section

3121(h)(5) leads to illogical results, suggesting that it would not have been an

American employer if it were owned half by a U.S. resident (say, Mr. Staluppi)
                                         - 24 -

and half by a foreign entity (say, DAF Charters, Ltd.) because under the check-the-

box regulations it would be treated as a partnership, yet under our reading it was

an American employer despite being fully foreign owned. Petitioner similarly

notes a reversal of its situation (i.e., if it were a foreign disregarded entity wholly

owned by a domestic corporation, then it would not have been an American

employer) and how this possibility provides an opportunity for domestic

corporations in its line of business to avoid employment tax liability. While these

may or may not be accurate interpretations of the law, they simply are not the

situation that we face in this case. Petitioner is entitled to choose the entity form

in which it conducts business, and the check-the-box regulations give it broad

latitude in doing so. Petitioner presumably had good reasons for choosing the

form that it did, but now it must live with the tax consequences even if it can

envision better possibilities in retrospect. Commissioner v. Nat’l Alfalfa

Dehydrating & Milling Co., 417 U.S. 134, 149 (1974); Selfe v. United States, 778
F.2d 769, 773 (11th Cir. 1985).

      Petitioner also notes that there are certain exceptions under which entities

that are disregarded under the check-the-box regulations remain disregarded for

certain employment tax purposes (for example, an individual owner of a

disregarded entity is instead treated as self-employed, sec. 301.7701-
                                        - 25 -

2T(c)(2)(iv)(C)(2), Temporary Proced. & Admin. Regs., 81 Fed. Reg. 26694 (May

4, 2016); see also sec. 301.7701-2T(c)(2)(iv)(A), 76 Fed. Reg. 67366 (Nov. 1,

2011),12 and an owner of a disregarded entity that qualifies for the family

employment or religious faith exemptions from FICA is also exempt from

employment taxes, secs. 31.3121(b)(3)-1(d), 31.3127-1(b), Employment Tax

Regs.).13 But petitioner does not coherently indicate how these exceptions apply

to this case. Instead, they actually buttress respondent’s position; because

petitioner cannot identify an exception in the check-the-box regulations that

applies specifically to its situation or for purposes of section 3121(h), the main

rule of section 301.7701-2(c)(2)(iv)(B), Proced. & Admin. Regs., applies,

      12
        In its motion papers petitioner cites sec. 301.7701-2(c)(2)(iv)(C)(2),
Proced. & Admin. Regs., but this section is “[r]eserved” in the check-the-box
regulations and refers to sec. 301.7701-2T(c)(2)(iv)(C)(2), Temporary Proced. &
Admin. Regs., 81 Fed. Reg. 26694 (May 4, 2016), “[f]or further guidance”.
      13
         Petitioner also notes that an owner of a disregarded entity that qualifies for
the exemption from Federal income tax under sec. 501(c)(3) is also exempt from
Federal unemployment insurance payments, citing the Department of the
Treasury’s explanation of the 2007 regulations. See T.D. 9356, 2007-2 C.B. 675,
676 (citing sec. 3306(c)(8)). Notably though, that explanation also explicitly
states that such a disregarded entity is not exempt from employment taxes, which
is only logical, since organizations that are exempt from Federal income tax under
sec. 501 are not themselves exempt from employment taxes on wages over $100
per year paid to any employee. See sec. 3121(a)(16). Petitioner, as a for-profit
enterprise, fails to clearly indicate how this somehow affects its employment tax
liability.
                                          - 26 -

classifying petitioner as a corporation for employment tax purposes, including the

application of section 3121(h).

         Finally, petitioner suggests that because section 301.7701-2(c)(2)(iv),

Proced. & Admin. Regs., did not exist when Congress enacted section 3121(h) in

its current form as part of the 1954 Code, ch. 736, sec. 3121(h), 68A Stat. at 425,

we should use the same meaning of “corporation” as in the 1954 version of section

3121(h); in petitioner’s view Congress “was clearly referring to an entity that is

regarded as a corporation for income tax purposes”, which it is not. This argument

hardly needs addressing; if Congress wanted the term “corporation” in section

3121(h) to have a static meaning, Congress would have said so.

         Because petitioner is treated as a corporation for employment tax purposes

and was organized under the laws of the State of Florida, we hold that it was an

American employer under section 3121(h)(5), section 3121(b) applies, and the

section 3121(b)(4) crewmen’s exemption does not. Petitioner is therefore liable

for employment taxes on all wages it paid to its employees during the period at

issue.

III.     Challenge to Appropriateness of Proposed Levy

         As indicated supra p. 10, in determining whether to sustain a proposed levy,

Appeals must take into consideration: (1) whether the requirements of applicable
                                        - 27 -

law and administrative procedure have been met, (2) all issues raised by the

taxpayer, including offers of collection alternatives, and (3) whether any proposed

collection action balances the need for the efficient collection of taxes with the

legitimate concern of the taxpayer that collection be no more intrusive than

necessary. Sec. 6330(c)(3); see also Lunsford v. Commissioner, 117 T.C. 184.

Under the abuse of discretion standard, the Court examines whether an Appeals

determination was arbitrary, capricious, or without sound basis in fact or law. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006); see also Sego v. Commissioner, 114 T.C. 610; Goza v. Commissioner,

114 T.C. 182. We do not conduct an independent review or substitute our own

judgment for that of the Appeals officer. Murphy v. Commissioner, 125 T.C.
320. If the Appeals officer follows all statutory and administrative guidelines and

provides a reasoned, balanced decision, the Court will not reweigh the equities.

Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Link v. Commissioner,

T.C. Memo. 2013-53, at *12.

      Petitioner’s petition failed to raise any issues other than its underlying

liability for the period at issue. Therefore, any issues pertaining to Appeals’

administrative determination are deemed conceded. See Rule 331(b)(4). In any

event, petitioner’s authorized representative indicated on several occasions to the
                                        - 28 -

Appeals settlement officer that petitioner did not wish to pursue any collection

alternatives. It is not an abuse of discretion for an Appeals officer to sustain a

collection action and not consider collection alternatives when the taxpayer has

proposed none. See McLaine v. Commissioner, 138 T.C. 228, 243 (2012);

Kendricks v. Commissioner, 124 T.C. 69, 79 (2005); see also sec. 301.7122-

1(d)(1), Proced. & Admin. Regs. (requiring that offers to compromise a tax

liability must be made in writing and contain all the information prescribed or

requested by the IRS). Additionally, the record establishes that the Appeals

settlement officer verified that all legal and procedural requirements had been met,

see CreditGuard of Am., Inc. v. Commissioner, 149 T.C. 370, 379 (2017), and

determined that the proposed levy appropriately balances the need for the efficient

collection of taxes with petitioner’s legitimate concern that the action be no more

intrusive than necessary. Thus, it is apparent that the Appeals settlement officer

committed no abuse of discretion in sustaining the proposed levy.

IV.   Conclusion

      Petitioner has not given us a sufficient basis to deny summary adjudication

in respondent’s favor and to grant summary adjudication in its favor pursuant to

Rule 121. Accordingly, we will deny petitioner’s motion and grant respondent’s

cross-motion.
                                       - 29 -

      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 and decision

                                      will be entered.