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Tax Court Holds Sole Member of LLC Personally Liable for Unpaid Employment Taxes

A sole member of a Limited Liability Company (LLC) was held personally liable for the LLC’s unpaid employment taxes by the Tax Court.  The LLC was disregarded as a separate entity under the check-the-box regulations for federal income tax purposes.  Although the taxpayer filed all the required returns, he failed to pay part of the liabilities reported on those returns.  The issuance of a separate EIN number for the LLC does not necessarily indicate the existence of a distinct taxpayer.  With regard to the EIN, the Tax Court stated the taxpayer could not “frustrate the principle that a disregarded entity’s employment tax liability is the liability of the LLC’s sole member.”

Editor’s Comment

This case involves employment tax liability from tax years 2006 and 2007.  It is important to note that since January 1, 2009 a disregarded entity is treated as a corporation for purposes of employment tax reporting and liability.  In order for the IRS to hold a sole member liable it must make a separate responsible person penalty assessment under Internal Revenue Code Section 6672.  In addition to federal and state income tax returns for your business, the professionals at The Center can assist you with your employment tax returns.

Remember, just because you create an LLC, does not mean you will not be held personally liable for payroll taxes.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors